UK Borrowing Costs Soar to 5% as Iran Conflict Sparks Global Bond Market Sell-Off

The UK government's borrowing costs have risen above 5% amid an intensifying global bond market sell-off fueled by the Iran war. The yield – or interest rate – on 10-year debt hit its highest level since the 2008 financial crisis, rising 13 basis points to 5.081%, as investors acted on concerns about the economic fallout from the conflict.

Borrowing costs also rose for the US and eurozone governments, underscoring growing turbulence in the global financial system after Donald Trump's extension of a deadline for a peace deal failed to soothe jittery investors. Financial markets worldwide slumped on Friday, extending falls seen since the outbreak of the war, with losses in London and across major US and EU trading hubs. The price of Brent crude remained above $110 a barrel.

Kathleen Brooks, the research director for the UK at the financial trading platform XTB, said: “Markets feel more panicky this week, and Friday’s price action suggests that investors are losing faith in Donald Trump’s ability to end this war and reach a deal with the Iranians.”

Economists have warned that the Bank of England could be forced to take a tough approach to tackling inflation after losing some of its credibility by underestimating the leap in inflationary pressures in 2022. The increase in borrowing costs will add to the challenges facing Rachel Reeves, the chancellor, amid pressure on Labour to provide a package of financial support for households already reeling from a cost of living crisis.