---
title: "FTSE 100 falls as UK borrowing costs hit 28-year high"
publisher: "Stockmark.IT"
author: "Stockmark.IT Website"
published: "2026-10-02T07:27:22+00:00"
modified: "2026-10-02T07:27:22+00:00"
date: 2026-10-02
canonical: "https://stockmark.it/ftse-100-tumbles-amid-bond-market-sell-off/"
category: "Energy"
categories: ["Energy", "Financial"]
image: "https://i0.wp.com/stockmark.it/wp-content/uploads/2026/10/ftse-100-falls-as-uk-borrowing-costs-hit-28-year-high.png?fit=1536%2C1024&quality=80&ssl=1"
format: "news"
language: "en-GB"
---

# FTSE 100 falls as UK borrowing costs hit 28-year high

**Published:** October 2, 2026
**Author:** Stockmark.IT Website
**Categories:** Energy, Financial
**Featured image:** ![FTSE 100 falls as UK borrowing costs hit 28-year high](https://i0.wp.com/stockmark.it/wp-content/uploads/2026/10/ftse-100-falls-as-uk-borrowing-costs-hit-28-year-high.png?fit=1536%2C1024&quality=80&ssl=1)

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The FTSE 100 index declined by as much as two per cent on Thursday, marking its worst single-day performance since May. The slump was driven primarily by a sharp sell-off in the bond market, which pushed UK borrowing costs to their highest level since 1998. Yields on 30-year gilts broke above six per cent for the first time in 28 years, a milestone that had not been reached by any G7 nation since Italy during the eurozone debt crisis in 2012. Although the yield eased slightly to 5.93 per cent in afternoon trading, the initial spike sent shockwaves through the financial sector and broader equity markets.

The financial sector bore the brunt of the decline, with major lenders seeing significant losses as investors reassessed the sector’s exposure to rising interest rates. NatWest shares fell by 5.2 per cent, while Lloyds dropped 4.4 per cent and HSBC lost 4.3 per cent. Barclays also slid by nearly four per cent, contributing to a broader weakness in the FTSE 350, which pulled lower to fall 4.1 per cent in the afternoon session. The sell-off intensified following reports that senior bank executives were summoned to meet Chancellor John Healey ahead of the upcoming Budget. This move fuelled speculation regarding potential new taxation measures on the banking industry, a concern that had been raised by unions and opposition parties seeking to fund public services through the sector’s recent profits.

The rise in borrowing costs is largely attributed to geopolitical tensions and energy price shocks stemming from the conflict in Iran. Traders are concerned that a prolonged war will limit economic growth and force central banks to raise interest rates further. The Bank of England is expected to increase borrowing costs in November, ahead of a predicted surge in energy bills over the winter. Markets are currently betting that UK interest rates will reach 4.75 per cent by July of next year. Catherine Mann, a member of the Monetary Policy Committee, warned that the Bank must raise rates to maintain credibility in the battle against inflation. She argued that with rising upside risks to inflation and the volatile situation in the Middle East, a risk management strategy is appropriate to ensure a sustainable return of inflation to the two per cent target.

Global markets also reflected the strain, with the 10-year US Treasury bond yield jumping to 5.33 per cent, a level last seen in 2002. This benchmark for global government borrowing costs highlighted the broader pressure on sovereign debt. In the United States, the Dow Jones Industrial Average initially rallied at the open, rising 0.5 per cent to 51,139.14, while the S&P 500 climbed 0.3 per cent. However, the rally was short-lived as oil prices spiked. Brent crude climbed three per cent to nearly $101 a barrel, causing US stocks to turn lower later in the day. The tech-heavy Nasdaq Composite had earlier jumped 0.5 per cent following strong results from Micron, which boosted chip companies, but the broader market sentiment remained fragile.

The pound sterling also came under pressure, dropping 0.3 per cent on Thursday to $1.322. This follows a 2.1 per cent decline against the dollar during September, which was the worst monthly performance for the currency in a year. The US dollar was boosted by surging yields on US debt, as higher yields tend to attract investors to US Treasuries. Analysts noted that while rising yields are supportive for the dollar, a significant inflection point that hurts the equity market could further benefit the US currency as a safe haven. The pound remained little changed against the euro at €1.171, near its strongest level since June.

Political reactions to the rising borrowing costs have been sharp. Opposition parties have questioned the Prime Minister’s handling of the situation. Alex Burghart, the Conservative deputy leader, expressed concern over the lack of plans to control government spending, while Reform leader Nigel Farage stated that the Prime Minister was not facing up to the reality of the crisis. The party’s economic spokesman, Robert Jenrick, suggested that the Chancellor would fail to curb borrowing costs due to unfunded promises and delays on infrastructure projects. Meanwhile, an economist from the Institute of Economic Affairs noted that the surge in bond yields was occurring in line with global trends in response to the Iran war energy shock, suggesting that Labour’s specific policies had not yet significantly contributed to the rise in yields.

Looking ahead, investment bank Cavendish warned that oil prices would remain high in the medium to long term. The firm stated that buyers are forced to cover higher insurance costs and shipping premiums, which will keep crude prices elevated. Analyst James Midgley added that even if Middle East exports normalise, higher insurance costs and strategic restocking should support pricing. This analysis supports the case for higher government borrowing costs, as investors demand higher yields to cover the risk of inflation eroding their returns. The situation remains fluid, with global bonds suffering their largest monthly decline in years due to deteriorating government finances, a glut of issuance, and rising inflation.

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