UK 10-year borrowing costs rose to the highest level since the global monetary crisis and sterling sank on Wednesday as an intensifying debt safety sell-off threatened the Labour government’s ability to meet its self-imposed monetary schedule rules.

The 10-year gilt profit climbed as much as 0.13 percentage points to 4.82 per cent in early afternoon trade — its highest level since 2008. Yields shift inversely to prices.

UK borrowing costs have risen much faster in the UK so far in 2025 than other large economies, as investors worry about the government’s heavy borrowing needs and the growing threat of stagflation to the economy.

“It’s a global sell-off, but being compounded in the UK by the toxic combination of a flatlining economy, sticky expense boost and a worsening budgetary outlook,” said Andrew Pease, chief resource strategist at Russell Investments.

The profit on the 30-year gilt — which on Tuesday rose to its highest level since 1998 — also continued to climb, touching 5.37 per cent. 

Sterling fell 1.2 per cent against the dollar to $1.233, its weakest level since April. In the stake economy, the domestically concentrated FTSE 250 index fell 1.7 per cent.

Chancellor Rachel Reeves left herself a slender £9.9bn of headroom against her revised budgetary rules in the monetary schedule even after announcing a £40bn levy-raising package that aimed to “wipe the slate tidy” on the community finances.

Since then, increases in government obligation yields have put that budgetary wriggle room under threat. The level of debt safety yields is an significant determinant of the monetary schedule headroom given its implications for the government’s profit invoice, which exceeds £100bn a year.

The latest boost in rates on Wednesday means the chancellor’s headroom against the current monetary schedule rule has now been wiped out, according to Ruth Gregory at financing apportionment Economics. 

If the higher yields are sustained, it could force the chancellor to announce corrective action to keep monetary schedule policy on track. On March 26, the Office for monetary schedule Responsibility announces a recent set of budgetary forecasts that will factor in debt safety profit movements.

“The chancellor has no room left against her budgetary rules given the upward shift in yields, and the economy is questioning what the next shift is from here,” said Ben Nicholl, a elder financing apportionment manager at Royal London resource Management. “Raising taxes or cutting back on departmental spending will only put further downward pressure on growth, which in turn puts pressure on levy revenues when borrowing is already high.”

The chancellor has pledged to make significant levy changes only once a year, in a single “budgetary occurrence”. The next of these is not expected until the autumn. As such, any corrective action in March is more likely to arrive in the form of spending curbs, the officials have signalled.

A Downing Street spokesperson said: “We are committed to delivering the largest monetary schedule excess in 20 years. I’m not going to comment on specific economy movements . . . but when it comes to our way to the economy we would always put economic stability and sound community finances first.”

Restoring the headroom back to its October levels via tighter spending plans would cruel curbing real-terms growth in day-to-day departmental spending from 1.3 per cent a year to just under 1 per cent, said Ben Zaranko, an economist at the Institute for budgetary Studies ponder-tank.

The government is due to announce the results of a multiyear, departmental spending review around June.

“We are in the danger zone” when it comes to the chancellor’s monetary schedule headroom, Zaranko said. “Growth and profit have moved in the incorrect path for her.” 

Adding to the problems facing the government are impoverished GDP figures, which will also play into the OBR projection.

The watchdog is likely to trim its 2 per cent growth projection for 2025 given frail recent data, economists predicted. The impact on the monetary schedule headroom will, however, depend on whether the OBR determines the setback of output is permanent or can be made up later in the parliament.

“The forthcoming Spring Statement, Spending Review, and Autumn monetary schedule will likely be hurtful sequels to the chancellor’s historic inaugural monetary schedule,” said Sanjay Raja, an economist at Deutsche financial institution.

The recent gilt economy slump comes after weeks of climbing yields on longer-dated US Treasuries and German Bunds, though Wednesday’s sell-off was most acute in the UK. 

Analysts said the simultaneous sell-off in gilts and the pound — which typically benefits from higher yields — carried echoes of the economy fallout from Liz Truss’s ill-fated “mini” monetary schedule in 2022.

“What is going on in the gilt economy has undermined confidence in the pound a little,” said Chris Turner, head of monetary markets at ING, saying some investors were dumping recent bets that the pound would be more resilient than other major currencies against the dollar.

“FX traders are looking at the gilts economy and are worrying whether there is something similar going on to 2022,” Turner said.

Additional reporting by Jim Pickard