UK borrowing costs hit highest since 1998 amid Starmer uncertainty

Long-term UK borrowing costs climbed to levels last seen in 1998 as 30-year gilt yields jumped during trading. Investors reacted to mounting pressure on Prime Minister Keir Starmer and the prospect that a change in leadership could alter the government’s fiscal stance.

The move accelerated after LSEG data showed 30-year gilt yields rising to about 5.79%, an increase of roughly 10–11 basis points on the day, while 20-year yields also approached their 1998 highs. Ten-year benchmark yields traded around the 5% area, signalling higher medium- to long-term financing costs for the state. Market commentary tied the moves to both domestic political headlines and broader global risk factors.

The market impact was immediate: sterling weakened against the dollar and equity indices came under selling pressure. Rising gilt yields raise the cost of financing for the government and can squeeze risk assets as investors demand higher compensation for duration and fiscal risk. Traders noted increased volatility and a rise in risk premia across UK assets.

Broader drivers include higher energy prices and a global sell-off in bonds that has lifted yields internationally. Near-term political uncertainty — including the fallout from local election results — has amplified concerns about future fiscal policy, with markets sensitive to any sign policymakers might loosen fiscal discipline. Historical episodes suggest prolonged uncertainty can feed through to borrowing costs and economic planning.

Analysts say gilt yields may remain volatile until political clarity returns and energy price pressures ease. Some strategists warn that a leadership change that implies looser fiscal policy could push yields higher and weigh on sterling further, while others emphasize that eventual policy reassurance from the government or cooling energy markets could reverse some of the moves. Investors are likely to focus on upcoming political signals and macro data when repositioning portfolios.