Britain pays most to borrow since 2008 as bond markets put Healey on notice ahead of Budget

Updated: 11:49 EDT, 27 October 2026 Britain has paid the highest interest rate on five-year debt for nearly two decades as John Healey puts the finishing touches to his Budget.The UK sold £4.5billion of five-year gilts at an average yield of 5.036 per cent – the most since 2008 – underlining the battle the Chancellor faces to keep the bond markets onside.Economists have warned he risks a repeat of the Liz Truss mini-Budget of 2022 if he spooks investors with plans for yet more borrowing to fund Labour’s lavish spending plans.Bond yields have surged around the world since the start of the US-Iran war, pushing up the cost of government borrowing as well as business loans and mortgages, as investors bet the energy price inflation shock will lead to higher interest rates. John Healey running in Westminster today ahead of tomorrow's BudgetBut UK yields are the highest in the G7 – outstripping even basket case France – amid concerns over Labour’s tax and spending plans.That has pushed up the cost of servicing Britain’s record £3trillion national debt pile – leaving less money available to fund areas such as defence and social care – in a major headache for Healey in the Budget.Professor Joe Nellis, head of economic research at accountancy firm MHA, said the Chancellor’s ‘central challenge’ was to ‘restore confidence in the state of the public sector finances’.He said: ‘Borrowing costs have risen sharply in recent months – UK government bond yields are the highest among the G7 countries – and the tax burden is approaching a post-war high.‘At the same time, demands for additional public sector spending continue to grow, particularly in health, social care, and defence.‘These competing demands give the Chancellor no easy solutions.’The Debt Management Office regularly sells gilts to investors to raise money for the government to spend – with today’s five-year debt auction reinforcing how the cost of doing so is rising.At a similar auction of ten-year gilts late last month, the UK paid an average yield of 5.38 per cent, the highest since 1999.Aran Bajwa, a portfolio manager at Columbia Threadneedle Investments, urged Healey to take the ‘difficult choices’ required – rather than ‘relying on spending cuts that are pushed further out into the forecast horizon’.He said: ‘Markets are increasingly sceptical of back-loaded consolidation plans. Stronger growth and productivity would certainly help the fiscal arithmetic, but they are unlikely to eliminate the need for difficult policy choices.‘Ultimately, a credible medium-term fiscal strategy requires decisions on welfare, work incentives, pensions, social care and the overall size of the state.‘Investors are likely to reward governments that confront those challenges directly rather than relying on a succession of narrowly targeted tax rises that add complexity to the tax system, deter investment and do little to improve the economy's long-run growth potential.‘Fiscal credibility is built through durable structural reform, not by repeatedly postponing difficult decisions.’DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you