Gilt Yields Surge: UK's Fiscal Test Amidst Rising Debt Concerns

Britain's 30-year borrowing costs have reached their highest level since 1998, with sterling plummeting by over 1%, underscoring increased investor anxiety over the UK's fiscal future. This follows widespread selloffs in major bond markets amid concerns about rising debt levels globally.

The UK economy faces significant challenges, marked by a one-day sharp decline in the pound, highlighting fiscal vulnerabilities. Lloyds FX strategist Nick Kennedy has highlighted the continuous perilous fiscal environment as a key concern, with investors demanding greater risk premiums. The yields on thirty-year gilts peaked at 5.69%, their highest in over two decades.

Finance Minister Rachel Reeves is anticipated to announce tax hikes in her autumn budget to adhere to fiscal targets, while Prime Minister Keir Starmer is reorganizing his team to tackle difficult economic times. Meanwhile, France also faces fiscal challenges, with its government bond yields reaching a 16-year high.

(With inputs from agencies.)