Long-term UK borrowing costs at 28-year high
Longer-dated gilt yields have also surged, which means higher borrowing costs for Andy Burnham's government.
The yield, or interest rate, on the 30-year gilt jumped 9 basis points to 5.88%, the highest since March 1998.
This comes as oil prices keep climbing, with Brent crude rising 1.7% to $92.1 a barrel. US West Texas Intermediate is 1.9% higher at $87.35 a barrel.
Thomas Pugh, chief economist at the audit, tax and consulting firm RSM UK, said:
double quotation mark Gilt yields are up and it's tempting to blame this on UK-specific factors. But government bond yields are surging across the world, especially in America. That doesn't mean the UK is off the hook. We still have to pay a higher interest rate than similar countries, suggesting investors see us as a riskier place for their cash. That reflects a combination of political risk, low growth and sticky inflation.The energy shock and the threat of rising inflation are important factors. Inflation expectations matter because inflation erodes the purchasing power of a bond's fixed payments. When investors believe inflation could remain elevated, they demand a higher yield as compensation.
But there is much more to it than that, especially for longer-dated bonds. Governments are still spending as if interest rates were near zero and their economies were in crisis. The budget deficit in the UK is likely to be close to 4% of GDP this year and close to 6% in the US. At the same time, this borrowing is becoming increasingly hard to finance.
The UK will spend about 3.7% of national income just to pay the interest on its debt. In other words, we are borrowing more to help cover our interest bill increasing the risk of public debt rising further and prompting global investors to demand a higher risk premium.
There is also something of a credibility issue, he said.
double quotation mark Inflation has been above target in the UK and US for much of the past five years, raising questions about whether it will return sustainably to 2%. Meanwhile, various governments have not followed through on promises to bring deficits down. Lenders therefore have to factor the prospect of higher inflation and greater bond issuance into the price they are willing to pay.The elephant in the room is the rise of economic populism. There is a logic to populism, whether it comes from the right or the left. Both versions tend to favour expansionary fiscal policy – tax cuts, higher spending or both – tolerate higher inflation and resist efforts by central banks to restore price stability. If such policies continue for long enough without a course correction, the risks of financial and currency instability increase. Global investors understand where such policies can lead.
UK gilts chart
double quotation mark Alongside the huge supply of government bonds, the private sector is also starting to borrow more. AI firms are expected to borrow about $500bn this year to build data centres – for comparison, the UK government will borrow about $160bn. That is increasing competition for capital and pushing yields higher. None of these factors look temporary, and so bond yields are rising to compensate.
Key events
Closing summary
The UK's long-term borrowing costs jumped to their highest level since early 1998 on Tuesday as investors dumped government bonds, betting on higher inflation.
The yield – in effect the interest rate – on 30-year UK government bonds, known as gilts, hit 5.89% at one point, up 10 basis points, as London markets caught up with a sell-off that swept Japan and the US on Monday, a bank holiday in the UK.
Ten-year gilt yields rose 10bps to about 5.25%, their highest level since the 2008 global financial crisis, and are now at 5.21%.
The moves were partly triggered by higher oil prices, with Brent crude jumping over 2% to $92.42 a barrel, up nearly $2. Gold slid 1.8% to $4,370 an ounce, and stocks fell in Europe and on Wall Street. The Nasdaq slid 1.3% at the open.
The sell-off in government bond markets around the world carried on for a second day, as traders fretted about rising inflation risks and surging government spending.
Japan's 10-year benchmark bond yield hit 3% for the first time since 1996. The 10-year US Treasury yield hit 4.78%, the highest level since early 2025.
Germany's 10-year yield, the benchmark for the eurozone, hit 3.34% earlier on Tuesday, a fresh 15-year high.
Higher yields progressively increase the cost of financing the UK government's debt. If sustained, these would pass through to the Office for Budget Responsibility (OBR)'s forecasts for John Healey's 28 October budget.
Deutsche Bank's chief UK economist, Sanjay Raja, said that based on Tuesday's yields, Healey's headroom against the current budget rule would fall from £26bn at Rachel Reeves's spring forecast, to £13.8bn before covering any additional spending plans.
Almost all of the deterioration results from higher government interest costs. The OBR's March forecast had gilt yields at 5.1% for this year. Gilt yields eased back a bit later on Tuesday – to 5.85% for the 30-year and 5.21% for the 10-year – but they are still well above the predicted level.
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Thank you for reading – we'll be back tomorrow. Take care! – JK
Eurozone inflation jumps to three-year high, adding to expectations of ECB rate hike next week
Eurozone inflation jumped to a three-year high in August, as the war in the Middle East continued to push up energy costs.
The annual inflation rate rose to 3.3% last month, official data showed on Tuesday, up from 2.9% in July and well above the European Central Bank's 2% target.
The statistics office Eurostat said energy prices jumped 14.3% in August after rising 10.3% in July.
The US war against Iran and the near-total closure of the strait of Hormuz, a key shipping passage for global oil and gas supplies, have sent global energy costs soaring.
Leo Barincou of Oxford Economics said:
double quotation mark Inflation should remain well above target into next year, as higher gas and food prices put additional upward pressure on the index.
The ECB is widely expected to raise interest rates again at its meeting on 10 September to bring inflation lower, after a first hike in June.
The bank's chief, Christine Lagarde, warned in July that the energy shock from the conflict “could intensify furtherâ€.
Core inflation, which strips out volatile energy and food prices, has remained largely stable in recent months.
In August it eased to 2.4 after accelerating slightly to 2.5 in July.
Food and drinks inflation in August remained at 1.2%, the same rate as in July.
Octopus Energy buys Danish power trading firm BD Energy
Octopus Energy has â acquired the Danish ​power trading firm BD Energy â to bolster its technology-driven trading capabilities, as it â expands its renewable energy business ​in Europe.
BD Energy will be integrated ‌into Octopus Energy Trading, the UK group's power trading arm, allowing the company to scale trading volumes and ‌expand into new markets with access to Octopus' ​capital and technology.
Founded in 2022, BD Energy uses machine learning â and algorithms to automate power trading ​across ​25 electricity pricing ​zones in 15 ​countries.
Financial terms of the deal were not disclosed.
Frasers Group reviews support of Hugo Boss chair as it aims to take control of German retailer
Sarah Butler
Sports Direct founder Mike Ashley's Frasers Group has warned it is reviewing its support of the chair of Hugo Boss as it aims to control more than half the German fashion brand's stock.
The Sports Direct owner confirmed it has built up its stake in the luxury business to 47.89% of the business, just short of a controlling stake, after recent deals to acquire extra shares.
On Tuesday, the retail group – which recently snapped up Harvey Nichols – said it still intends to “further increase†its ownership of Hugo Boss.
Frasers made a near €2bn (£1.73bn) takeover offer for the luxury group last month, but Hugo Boss's board rejected the bid as “inadequate†and urged shareholders not to accept it.
Andrew Wade, a retail analyst at Jefferies, said the comments regarding Hugo Boss's chair, Stephan Sturm, indicated “an increasingly hands-on approach†by Frasers to Hugo Boss.
Frasers has stocked Hugo Boss products in its stores, including House of Frasers and Flannels, for some years, but has taken an increasingly activist role since it first took a stake in the German group in June 2020. It has pushed for change at the company, which has faced struggling sales in women's clothing and sluggish demand in its important Chinese market.
AstraZeneca's share price is up a more modest 0.4%, after Britain's biggest drugmaker released positive results from a late-stage drug trial.
AstraZeneca and the Hong Kong-based drug developer Hutchmed â said that a phase III trial of a combination of their â cancer drugs Tagrisso â and ​Orpathys significantly improved progression-free survival for cancer patients, when given early for a type of lung â cancer.
Cancer therapies make up nearly half of AstraZeneca's sales and Tagrisso is one of â its biggest-selling drugs, while Orpathys is being developed in partnership ​with Hutchmed. The British ‌drugmaker has set a goal of $80bn in overall annual ‌sales by 2030.
The drug combination was able to help patients in the trial live longer without their disease worsening compared with cases where Tagrisso alone was given as a first-line treatment ‌for EGFR-mutated advanced non-small cell lung cancer to patients whose tumours showed moderate to high levels of ​the MET protein marker, the companies said.
The leading principal investigator of ​the ​trial, Yi-Long Wu, said:
double quotation mark By combining Orpathys with Tagrisso, we have observed a clear clinical benefit that could reshape primary treatment strategy for this â distinct patient population.
Patients in ​the trial had not previously received ​treatment for their ‌advanced lung ​cancer.
Brent crude gains over 2%; FTSE 100 down 0.6%
In financial markets, Brent crude has gained more than $2 to $92.52 a barrel, a 2.2% jump, as the US and Iran exchanged fire for the first time in a month at the start of this week.
This has stoked inflation fears, leading to a sell-off in bond and equity markets.
Gold is also trading sharply lower, falling 2.4% to $4,340 an ounce.
The FTSE 100 index has recovered some ground after tumbling more than 1% earlier, and is now down 0.5%, or 59 points, at 10,763. Miners Endeavour Mining, Fresnillo and Antofagasta are leading the losers while manufacturers Weir Group, Melrose Industries and Rolls-Royce are also among the main fallers.
Conversely, oil companies BP and Shell have jumped as they are set to benefit from the surge in crude prices, with BP 4.5% ahead, the main riser on the FTSE 100, while Shell is up 2%.
GSK is also among the main risers after the UK's second-biggest pharmaceutical company said it would advance its mRNA flu vaccine into late-stage clinical trials, after positive results in a mid-stage trial.
Reckitt Benckiser shares rose 3.5% after a US jury favoured ​the company in its trial over claims the company failed to warn customers that ​its products for premature ‌babies could cause ​a deadly bowel disease.
On the FTSE 250, Bodycote has been leading gains with a 4.4% rise in the share price, after the industrials group (which has been listed on the London Stock Exchange since 1972) agreed a £1.84bn takeover by the US private equity group Veritas. It remains to be seen whether rival private equity house CVC comes back with a higher offer.
WPP shares tumbled 3.45% after the Financial Times reported that the advertisement company will cut up to 1,000 more jobs by the end of the year – stepping up a major reorganisation under new chief executive Cindy Rose that also includes selling off non-core businesses.
UK mortgage approvals drop to two-year low
The number of mortgage approvals made to UK homebuyers has fallen to the lowest level in more than two years, according to Bank of England figures, while a survey showed house prices edging higher.
The housing market remains sluggish, as 56,053 mortgages were approved for house purchase in July, marking the lowest monthly figure since January 2024, the Bank's monthly report said. This compares with 58,215 mortgage approvals in June.
Over the past six months, monthly mortgage approvals for house purchases have averaged about 60,800, the central bank said.
Meanwhile the Bank's remortgaging approvals figures, which capture remortgaging with a different lender, showed an increase to 34,500 in July, from 34,100 in June.
The figures came as Nationwide Building Society said the average price of a UK home rose by 0.2% month-on-month in August, following a 0.1% dip in July, revised lower from a 0.1% rise.
It was the first monthly increase since April, as buyers and sellers remained in a “holding pattern†before an expected increase in interest rates later this year. Markets are expecting a quarter-point rate hike from the Bank in November or December.
Across the UK, the average house price in August was £275,465 – up by 1.6% year on year.
Lucian Cook, head of residential research at property firm Savills, said underlying house price affordability has shown signs of gradually improving, but:
double quotation mark The increase in fixed rate mortgage costs we saw in mid-July has prevented that from translating into any improvement in activity in the market, leading to a third consecutive month of weak mortgage approvals.And with more inflation to work its way through the system, it seems unlikely that we will see much of a sustained turnaround over the course of the remainder of the year.
Hina Bhudia, a partner at Knight Frank Finance, said:
double quotation mark Geopolitical tensions and elevated energy prices pushed mortgage rates higher during the summer, which has weighed on demand in the housing market.
Mark Harris, chief executive at mortgage broker SPF Private Clients, said:
double quotation mark On the ground, some lenders have been easing mortgage rates in recent days and weeks but swap rates, which underpin the pricing of mortgages, remain extremely volatile in response to tensions in the Middle East.Remortgaging numbers picked up slightly, suggesting that borrowers may be shopping around for better rates rather than sticking with their existing lender when their current deal comes to an end.
The Bank of England figures also showed that people borrowed £2bn in July, up from £1.9bn in June, including £900m on credit cards, down from £1bn.
Net borrowing through other forms of consumer credit, such as car dealership finance and personal loans, increased to £1.1bn in July, from £900m in June.
Sarah Coles, head of personal finance at AJ Bell, said:
double quotation mark Savers and investors tend to be highly motivated by a deadline, and from April 2027 savers under 65 will see their annual cash Isa allowance reduced from £20,000 to £12,000.That means we can expect cash Isa enthusiasm to build again as the summer fades and the end of the tax year gets closer.
Wheat prices hit 3 1/2 year high on Russia’s Black Sea attacks
Wheat prices have surged to a three-and-a-half year high, after reports that Moscow rejected a moratorium on attacks in the Black Sea, and struck Ukrainian ports overnight.
Earlier, prices retreated after Turkey issued a statement saying that it is in contact with Russia and Ukraine about grain shipping through the Black Sea.
Soybean and corn prices also climbed, to the highest levels in three years for soybeans, and a two-and-a-half year peak for corn.
The most-traded wheat contract on the Chicago Board of Trade climbed to a peak of $7.92-1/4 a bushel, the highest since 15 February, 2023, and later traded about 1% higher.
Corn rose to $5.38-1/2 a bushel and is now flat, while soybeans increased nearly 1% to $13.00-1/4 a bushel.
Russia attacked Ukraine's port infrastructure and a border crossing with Romania in the southern Black Sea region of Odessa overnight, according to Ukrainian officials.
Here's our full story on the sell-off in government bonds around the world.
The UK government's long-term borrowing costs jumped to their highest level since early 1998 on Tuesday as a global bond sell-off gathered pace, writes our economics editor Heather Stewart.
The yield – in effect the interest rate – on 30-year UK government bonds, known as gilts, hit 5.89% as traders fretted about a fresh increase in oil prices driving up inflation.
Ten-year gilt yields were at nearly 5.25%, the highest level since the global financial crisis of 2008.
Higher yields progressively increase the cost of financing the government's debt, and if sustained these would pass through to the Office for Budget Responsibility's forecasts for the chancellor, John Healey, when he delivers his 28 October budget.
The moves underline the tricky global backdrop facing Andy Burnham's government as he returns to Westminster promising to help consumers with the cost of living.
The bond sell-off was driven by international factors. Japanese 10-year yields hit their highest level since the 1990s amid expectations that the Bank of Japan will have to raise interest rates to control inflation.
Investors also appeared to be responding partly to higher oil prices, which were up 1.7% at $92 after a fresh exchange of fire in the Iran conflict over the weekend. Higher energy costs drive up inflation, potentially forcing central banks to respond.
Finance ministers and central bankers from the G20 major economies are meeting in North Carolina to discuss the state of the global economy.
The US Treasury secretary Scott Bessent, who chaired the G20 meeting of his peers, hinted afterwards that Japanese policymakers could be about to raise interest rates.
“I have information that the market doesn't have, and it's my belief that the Japanese government and the Bank of Japan will do the things that will lead to a stronger yen,†he said.
In August the US and Japan took the rare step of intervening jointly in global foreign exchange markets in an attempt to prop up the yen, but the Japanese currency subsequently resumed its slide.
The London stock market is also reeling from the departure of three more companies.
Bodycote and Gamma Communications are the latest names to be taken private.
UK industrials group Bodycote said it had agreed a £1.8bn takeover from US private equity group Veritas.
Gamma agreed to a takeover by London-based private equity ​firm Epiris, valuing the British telecom firm ‌at £1.08bn.
Mould said:
double quotation mark Bodycote, which successfully rebuffed interest from Apollo earlier this year, has finally conceded defeat as this initial takeover saga flushed out subsequent interest from two other private equity groups in CVC and Veritas.The story may not quite be over as CVC has said it might come back with its own improved offer but even based on the terms from Veritas the premium is a bit above the 37% average for UK takeovers so far in 2026.
After a lengthy pursuit, another private equity buyer in Epiris secured the backing of the board at Gamma for a takeover at a 53% premium to the undisturbed share price.
While some investors may be toasting the payoff they receive from the wave of M&A, the longer-term implications are potentially bleak. These deals mean a further dilution of the breadth and quality of a UK market which is struggling to attract new companies to replace the ones which are being acquired.
And the Scottish energy company Capricorn is set to end its 38 years on the FTSE after striking a deal with its Norwegian rival DNO for $396m. Capricorn had recommended an offer from Genel Energy, but switched its recommendation after receiving a higher offer from DNO.
