UK bond yield jumps to its highest level since 1998 at 5.697%; Pound Sterling down 1.5% in a day. Here’s why 

MINT | September 2, 2025 | 10:10 PM IST | Breaking News, Business | Follow on Google News

UK bond yield jumps to its highest level since 1998 at 5.697%; Pound Sterling down 1.5% in a day. Here’s why 

The United Kingdom’s 30-year borrowing costs jumped to their highest level since 1998 amid rising investors’ anxiety about the nation’s ability to keep its finances under control, reported the news agency Reuters on Tuesday, 2 September 2025.

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The selloff witnessed in British bonds coincided with the selling across major bond markets around the world, where the focus of the investors was on the rising debt levels, according to the agency report.

The British 30-year bond yields rose to 5.697%, its highest level since May 1998, according to the agency report.

UK Pound drops

The UK Pound Sterling also dropped 1.5% on Tuesday, and is currently trading 0.95% lower against the US dollar at $1.3416, according to the data collected from Marketwatch.

The weakness in the UK Pound Sterling on Tuesday, which had its biggest single-day fall since 2023, showed the vulnerability in UK markets at a time of increasing concern about the Labour government’s ability to exercise fiscal constraint.

Lloyds’ FX strategist Nick Kennedy told the news agency that the UK has had a perilous fiscal backdrop which is expected to continue over time.

“The UK has had a perilous (fiscal) backdrop and that’s going to continue,” he said. “Over the summer, there has been a bit of a risk premium built into the rates market. Investors are now wanting more of a risk premium for sterling as well.”

What are the challenges ahead?

The pressure which was witnessed in the UK bonds came one day after UK Prime Minister Keir Starmer reshuffled his top advisors. According to the agency report, Starmer moved the finance minister, Rachel Reeves’ deputy, Darren Jones, into Downing Street to coordinate better with the government.

The reshuffling also included Starmer appointing a former Bank of England deputy governor, Minouche Shafik, as his chief economic adviser, to boost the economic expertise ahead of the difficult annual budget later this year.

With the annual budget unlikely to be held before November 2025, the UK is facing weeks of speculation on the rise in taxes, which can potentially dampen investments and consumer confidence.

“With each gilt ‘episode’ and subsequent rise in yields we are getting closer to the endgame where the government’s options are running out,” BlueBay Asset Management fund manager Neil Mehta told the news agency.

“The endgame could consist of the government reneging on manifesto commitments and possibly even the end of Starmer/Reeves, but ultimately the UK’s economic problems lie deep (energy, housing, labour) which could take a much longer time and bigger political shakeup,” said Mehta.

Britain reportedly sold a record 14 billion pounds ($18.9 billion) of new 10-year bonds on Tuesday, 2 September 2025, after attracting over 140 billion pounds in orders from investors, according to the agency report.

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