Britain’s borrowing costs have surged more sharply than any other G7 nation, following Prime Minister Sir Keir Starmer’s recent reshuffle of his economic team. On Monday, the yield on 30-year UK government bonds (gilts) climbed to 5.64%, its highest level in 27 years.
This spike in yields effectively the interest rate the government must pay to borrow or reflects growing market concern about the UK’s fiscal direction, especially amid expectations of higher government spending and tax increases.
The sharp increase followed Sir Keir’s appointment of Darren Jones as Chief Secretary to the Treasury. Jones, formerly deputy to Chancellor Rachel Reeves, replaces James Murray, who has been moved to a ministerial role.
The Prime Minister also appointed Baroness Shafik, a former Bank of England deputy governor, as his chief economic adviser. Her previous calls for increased taxes on wealth, including inheritance, land, and property, have stirred investor unease about the direction of fiscal policy.
Dan Tomlinson , who co-authored reports advocating wealth taxes during his time at the Resolution Foundation will now serve as Exchequer Secretary.
Analysts say the market reaction indicates a lack of confidence in the new economic team’s ability to rein in government spending or address the UK’s deteriorating fiscal outlook.
“The immediate market reaction is not exactly a vote of confidence on these moves,” said Simon French, chief UK economist at Panmure Liberum. He warned that expectations of increased government borrowing were also pushing yields higher.
While part of the pressure comes from global trends including U.S. policy uncertainty under Donald Trump and political instability in France many economists argue that the UK’s poor fiscal position and lack of a credible plan make it particularly vulnerable.
“With no clear strategy to fix the UK’s weak public finances or control inflation, investors are understandably nervous,” said James Bilson, a bond strategist at Schroders.
Bond investors are demanding higher returns for holding long-term UK debt, a signal that they see the government’s economic strategy as risky. “The government is too large, the tax burden is already heavy, yet still can’t cover expenses,” said James Athey, a bond trader at Marlborough. “The economy is weak and unproductive. Difficult decisions are needed , but this government seems unwilling or unable to make them.”
The rise in gilt yields means higher borrowing costs for the government, which will place added pressure on Chancellor Rachel Reeves ahead of her next Budget. Reports suggest she may have to raise taxes to plug a £50 billion shortfall in the public finances.
The reshuffle strengthens the influence of figures who have previously advocated for taxing wealth more heavily. The Resolution Foundation, where both Tomlinson and new budget lead Torsten Bell previously worked, published a report in 2022 arguing that wealth is relatively under-taxed compared to earned income — a view that could soon shape tax policy.
The reshuffle has drawn criticism from the opposition, with Sir Mel Stride, the Shadow Chancellor, comparing the changes to “rearranging the deck chairs on the Titanic.”
“With inflation doubled, borrowing soaring, and £40bn in tax hikes already on the table, Darren Jones is now in charge of delivery,” said Stride. “And with more taxes looming, Labour’s ship is sinking fast.”
While the budget is expected later this year, it will now be a major test for the government’s credibility on economic management both in Westminster and in the financial markets.
