Rise in borrowing costs could force further spending cuts

Rachel Reeves could be forced to make fresh cuts to public spending at her March "spring forecast" as a rise in government borrowing costs puts the chancellor at risk of breaking her own fiscal rules.

- Richard Partington, Heather Stewart

With the government under pressure on the economy, City analysts warned that Britain's long-term borrowing costs hitting the highest level since 1998 risked wiping out almost all of a £10bn buffer the chancellor had kept in reserve at the autumn budget.

The yield - in effect the interest rate - on UK 30-year debt rose by as much as 0.4 percentage points to hit its highest level in 27 years. The rise to 5.22% exceeded the peak reached after Liz Truss's mini-budget in 2022.

Government borrowing costs have risen worldwide in recent weeks as investors weigh up the prospect of stubbornly high inflation forcing the world's most powerful central banks to hold back from cutting interest rates. Investors also fear that the US president-elect Donald Trump's policies could further stoke inflationary pressures.