UK Long-Term Borrowing Costs Hit 27-Year High, Fiscal Tightening Expected

LONDON – The United Kingdom's long-term borrowing costs have surged to their highest level since 1998, with the interest rate on 30-year government bonds, known as gilts, reaching 5.72% in early September 2025. This significant rise is intensifying pressure on Chancellor Rachel Reeves ahead of the autumn Budget, prompting widespread speculation about forthcoming tax increases to stabilize public finances.

The elevated borrowing costs reflect growing investor concern regarding the UK's fiscal outlook. According to a tweet by user Andy 🏴󠁧󠁢󠁥󠁮󠁧󠁿, there is a perception of a "huge financial crisis looming for the UK government." The tweet further suggests that if borrowing costs remain high, the government's options are limited to either spending cuts, which the author believes they are "incapable of," or "print[ing] money," leading to "massive inflation incoming."

However, the government's recently published Spending Review 2025 outlines a strategy that includes both increased investment and targeted efficiency drives. While significant spending increases are planned for areas such as the NHS, defence, and infrastructure, the review also mandates departments to achieve "at least 5% savings and efficiencies" and aims for £14 billion in technical efficiency gains by 2028-29. This indicates a focus on fiscal discipline and strategic reallocation rather than an outright inability to cut.

Regarding monetary policy, the Bank of England is actively engaged in Quantitative Tightening (QT), reducing its asset purchase (Quantitative Easing, QE) program from a peak of £895 billion to £590 billion by June 2025. This means the Bank is withdrawing liquidity from the economy, not "printing money." The Monetary Policy Committee (MPC) has been gradually cutting interest rates since August 2024, with the Bank Rate currently at 4.0% as of August 2025.

While CPI inflation stood at 3.6% in June 2025 and is projected to briefly peak at 4.0% in September 2025, the Bank of England anticipates it will fall back to its 2% target by 2027. The Bank acknowledges risks to the inflation outlook, including global trade policies and energy prices, but its current stance is aimed at managing these pressures and ensuring long-term price stability, counter to the notion of "massive inflation incoming" due to money printing.