UK borrowing costs hit 28-year high in bond market rout and markets ramp up BofE rate hike bets as soaring oil and gas prices fuel inflation fears

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By JOHN-PAUL FORD ROJAS, DEPUTY BUSINESS EDITOR

Updated: 13:55 BST, 10 September 2026

UK borrowing costs have hit a fresh 19-year high amid a renewed gilt market rout sparked by global inflation fears and signs that Labour plans to continue its welfare splurge.

The sell-off in UK bonds, known as gilts, came as the European Central Bank (ECB) hiked interest rates for the second time this year in a bid to quell growing price pressures.

Yields on benchmark ten-year gilts climbed above 5.3pc for the first time since 2007. For 30-year gilts, yields topped 5.9pc, close to a 26-year high seen last week.

The ECB put up its benchmark rate from 2.25pc to 2.5pc and warned that the Iran war ‘continues to generate inflation pressures’. The US Federal Reserve will also face pressure to hike when its officials meet next Wednesday.

Markets expect the Bank of England to leave rates in the UK on hold at 3.75pc a day later but are betting on as many as four increases by the end of 2027.

It comes as oil prices surge higher thanks to escalating hostilities in the Middle East, adding to inflation pressures.

The rise in gilt yields adds to the headache facing Chancellor John Healey

Brent crude rose towards $106 a barrel to hit its highest level since May. UK gas prices are surging too, with Office for National Statistics (ONS) figures showing they have climbed to the highest level since December 2022 – 128pc up on a year ago.

As a result of the increases, motorists are already being squeezed, with petrol prices at a new four-year high.

And energy bills, already set to rise to a three-year high in October, are now forecast to climb by a further 18pc in January, according to experts at supplier E.ON.

The squeeze on household costs represents a major setback for Andy Burnham’s attempt to ease the cost of living burden for millions of voters.

And the gilt market rout, adding billions to the cost of servicing Britain’s debt pile, will make it harder for Labour to pay for any measures to relieve the pain.

It all adds to the headache facing Chancellor John Healey at his first Budget next month as he attempts to make the sums add up and fund Burnham’s costly plans including a council house building spree and an overhaul of social care, as well as a much-needed defence spending boost.

But it appears to be partly self inflicted after the PM made clear in the House of Commons this week that he would never prioritise defence over benefits.

Neil Wilson, UK investor strategist at Saxo Bank, said the remark was ‘negative for gilts… since it shows zero willingness to get a grip on welfare reform’.