STORY
The Government has sold £4.25 billion of 30 year bonds at a yield of 5.8168 per cent, the highest borrowing rate recorded at a gilt auction or syndication since the Debt Management Office was established in 1998. The sale comes as rising international borrowing costs place additional pressure on Chancellor John Healey before his first Budget on 28 October.
Demand for the bonds remained strong despite the cost to the Government, with investors placing orders worth £87.2 billion. Approximately 71 per cent of demand came from British investors. The yield exceeded the previous comparable record of 5.79 per cent, set in May 1998, and reflects the wider increase in long term borrowing costs across major economies.
Higher gilt yields increase the cost of financing Government debt and can reduce the amount available for public spending or tax reductions. The Office for Budget Responsibility had already forecast debt interest expenditure of £109 billion during the current financial year, equivalent to 8.4 per cent of public spending. The Chancellor has promised to retain the existing fiscal rules, although updated economic and borrowing forecasts will not be published until the Budget.