UK borrowing costs hit 28-year high amid Iran war and political uncertainty
Updated
Updated · BBC.com · May 5
UK borrowing costs hit 28-year high amid Iran war and political uncertainty
20 articles · Updated · BBC.com · May 5
Thirty-year gilt yields peaked at 5.78% and 10-year yields at 5.1% on Tuesday, extending earlier rises as Thursday's elections neared and market pressure intensified.
The effective closure of the Strait of Hormuz has driven oil and LNG prices higher, lifting inflation expectations and debt costs, while UK yields have risen more sharply than in other G7 economies.
Higher yields increase government debt-interest bills and squeeze Chancellor Rachel Reeves' budget room, despite borrowing falling to £132bn in the year to March before the Iran conflict.
With oil shocks and political turmoil colliding, is Britain spiraling towards another financial crisis?
How will the unprecedented Hormuz blockade permanently reshape global trade and inflation?
Surge in UK 30-Year Gilt Yields to 5.76% Highlights Fiscal and Monetary Policy Challenges
Overview
The UK's 30-year gilt yield surged to 5.76% in May 2026, driven by persistent inflation—especially in the service sector—and market expectations of Bank of England rate hikes starting June. This inflation is fueled by global energy price shocks from the Middle East conflict, which also push up UK mortgage rates. High government borrowing and debt levels add fiscal vulnerability, increasing debt servicing costs. In response, the Debt Management Office is shifting gilt issuance to shorter maturities, raising refinancing risks. The Autumn Budget's tax and spending measures briefly eased market concerns, lowering yields. Meanwhile, structural shifts like pension reforms and the Bank of England's quantitative tightening contribute to a steeper yield curve and higher long-term borrowing costs.