UK borrowing costs hit highest level since 2008 amid inflation shock

GiltsAdd to myFTGet instant alerts for this topicManage your delivery channels hereRemove from myFTUK borrowing costs hit highest level since 2008 amid inflation shockTen-year gilt yield rises to 4.94% as borrowing numbers add to concerns over energy price surgeSurging oil and gas prices have shifted market expectations from interest rate cuts to rises by the Bank of England © Charlie Bibby/FTUK borrowing costs hit highest level since 2008 amid inflation shock on x (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on facebook (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on linkedin (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on whatsapp (opens in a new window) Save UK borrowing costs hit highest level since 2008 amid inflation shock on x (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on facebook (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on linkedin (opens in a new window)UK borrowing costs hit highest level since 2008 amid inflation shock on whatsapp (opens in a new window) Save Ian Smith, Rachel Rees and Sam Fleming in LondonPublishedMarch 20 2026UpdatedMarch 20 2026Jump to comments sectionPrint this pageUnlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The UK’s borrowing costs have hit their highest level since the 2008 financial crisis, as disappointing public finance figures added momentum to a gilt sell-off sparked by fears of higher inflation. Ten-year gilt yields — a benchmark for long-term government borrowing — rose 0.09 percentage points to 4.94 per cent on Friday, as worries swirled over the public finances and the prospect of rising inflation.Surging oil and gas prices due to the conflict in the Middle East have driven up near-term inflation expectations and shifted market expectations from interest rate cuts to rises by the Bank of England, which has knocked bond prices.Rising inflation concerns were compounded by the Bank of England, which on Thursday held interest rates steady but warned over inflation risks and opened up the door to a rise in interest rates. “Unfortunately when gilts move, they move big,” said Pooja Kumra, rates strategist at TD Securities. “The extremely hawkish twist from the BoE was certainly not anticipated by market participants, where there had still been hope for delayed cuts.”Two-year gilt yields — which track expectations for BoE interest rates — rose another 0.11 percentage points on Friday to 4.51 per cent, taking them to their highest level in more than a year, as oil prices hover close to $110 a barrel.Traders are now pricing in three quarter-point interest rate increases this year, a sharp contrast to the situation before the Iran war, when they were expecting two reductions in 2026. The rise in borrowing costs will deepen the challenges facing chancellor Rachel Reeves. Concerns over the hit from an energy shock were exacerbated on Friday by figures showing the UK had borrowed a higher than predicted £14.3bn in February.“February’s public finances figures showed that the fiscal position was worse than expected even before the full impact of the surge in energy prices is felt,” said analysts at Capital Economics.Gilt yields in effect set the interest rate that the government has to pay on new borrowing, and are already the highest compared to G7 nations due to the UK’s persistent inflation and elevated levels of borrowing in recent years. The government plans to sell £252bn of gilts this year and already pays more than £100bn in interest costs on its outstanding debt. UK debt has been hit hardest in the global bond sell-off sparked by the Iran war, because its dependence on imported energy means a rise in oil and gas prices could quickly feed through to broader inflation.Some content could not load. Check your internet connection or browser settings.The BoE was previously expecting UK inflation to subside to 2.1 per cent in the second quarter, but it now predicts CPI growth of 3 per cent. Inflation could accelerate to 3.5 per cent in the third quarter, well above its 2 per cent target, the BoE added. Reeves doubled the headroom against her key fiscal rule to £22bn in the November Budget, but some economists warn this could quickly be whittled away by higher interest costs and lower growth rates when the Office for Budget Responsibility next delivers its economic forecasts. Higher energy costs are also triggering speculation that Reeves will be forced to announce energy support packages to ease the pain for households, leading to a further rise in public borrowing. Market experts Cornwall Insight said on Friday its latest estimate for the UK energy price cap for July to September would put typical annual household gas and electricity bills at £1,972, up from £1,641 between April and June.Reuse this content (opens in new window) CommentsJump to comments section Follow the topics in this article Gilts Add to myFT UK inflation Add to myFT UK interest rates Add to myFT Cost of living crisis Add to myFT Ian Smith Add to myFT Comments