Britain Faces Highest Borrowing Costs in Decades as Bank of England Mulls Bond Sale Slowdown

Britain’s long term borrowing costs have soared to levels unseen since 1998, ratcheting up pressure on Chancellor Rachel Reeves ahead of her crucial autumn budget scheduled for 26 November. Investors are increasingly uneasy as the yield on government bonds surges, threatening to make government borrowing more expensive and stretching the public finances further.

This spike in borrowing costs is partially attributed to international tensions, with trade disputes and recent interventions undermining central bank independence in the United States. Yet, the Bank of England’s ongoing quantitative tightening programme—selling off bonds acquired during past economic crises—has also played a significant role. The Bank has already reduced its gilt holdings by £100bn over the past year, now retaining around £560bn, with much of the divestment occurring at a loss.

Senior economic voices, including ex members of the Bank’s Monetary Policy Committee, have spoken out. Some argue that active bond sales should be scaled back or even halted, warning that continuing at this pace risks exacerbating gilt market instability and pushing yields even higher. One respected former committee member highlighted that the current conditions are so volatile that maintaining the pace of sales would disregard market sensitivities.

The Bank is expected to leave its base rate unchanged at 4 percent, but attention has turned to whether it will ease the pace of quantitative tightening over the next year. Many market participants now anticipate the Bank will restrict its gilt sales programme to roughly £70bn in the coming year. Some policy experts suggest switching entirely to passive tightening by allowing only maturing debt to expire, mirroring policies seen at the US Federal Reserve and European Central Bank.

According to the IPPR think tank, such a move could save the Treasury upwards of £10bn annually, although retaining the bonds comes with its own costs given the low returns compared to the interest the Bank pays on commercial reserves. While a softening of gilt sales could provide fiscal relief for the Chancellor, it is clear the central bank’s primary remit is to control inflation, not to ease the Treasury’s burden.

Amid these challenges, manufacturers received a modest boost as a key industry survey signalled growing output and improving export orders. Yet, the outlook remains fragile, with trade bodies and economists cautioning that the wider European market is still lacklustre and further shocks could quickly dampen nascent growth.