British economy

The UK bond market is currently experiencing a period of intense volatility, with the yield on 30-year government bonds, known as gilts, climbing to its highest point since 1998.

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On Tuesday, 30-year gilt yields rose as much as 0.14% to 5.79%, their highest level this century, before dipping slightly to around 5.6% at the time of writing.

The yield on the 10-year gilt also climbed as much as 0.15% to 5.11%, very close to the 18-year high of 5.12% hit earlier in the Iran war. It has since lowered somewhat to roughly 4.93% on Thursday.

Bond prices and yields have an inverse relationship. Bond yields rise when prices fall in order to increase investment attractiveness as demand for the debt weakens.

The surge in gilt yields indicates that investors currently perceive UK debt as a riskier prospect than other lending options, requiring a larger premium to commit their capital over the long term.

Presently, there are several reasons for this evident but abnormal lack of confidence.

The primary catalyst is the fear that the Bank of England may be forced to keep interest rates higher for longer to mitigate the chance that inflation will remain “sticky” and not return to the 2% target as quickly as previously hoped.

This estimation has been fuelled by surging energy prices due to the disruption caused by the Iran war. Gilts have continuously sold off during the conflict.

Speaking to Euronews, Richard Carter, head of fixed interest research at Quilter Cheviot, added that “the UK is expected to be the worst hit developed economy by events in the Middle East due to its reliance on energy imports, so the longer energy prices remain elevated, the deeper the pain the country is likely to experience.”

Beyond geopolitics and global energy markets, there are many domestic factors currently contributing to the exceptional distrust in UK debt.

Keir Starmer, fiscal policy and local elections

Political uncertainty and fiscal policy are also playing a central role in the recent and severe gilts sell-off.

In 2024, after Keir Starmer’s election, the Labour party pledged “fiscal discipline” and established a long-term framework in the Autumn Budget to distinguish the new government’s approach from the former.

The plan introduced the “Stability Rule” mandating that the current budget, which covers day-to-day costs such as public sector salaries and welfare, must be in surplus by the end of 2029/30. This effectively prohibits borrowing to fund the ongoing operations of the British state.

Additionally, the “Investment Rule” was also put forward to target the national balance sheet. This norm requires Public Sector Net Financial Liabilities (PSNFL) to be falling as a percentage of GDP within the same timeframe as the “Stability Rule”.

By using PSNFL rather than the traditional measure of net debt, the UK Treasury has more room to borrow for long-term capital projects like infrastructure and green energy, which are technically classified as “investments” rather than “spending”.

Finally, the Budget Responsibility Act 2024established a “fiscal lock”, legally preventing any significant tax or spending changes from being introduced without an independent assessment from the Office for Budget Responsibility (OBR).

Despite all these rigid guardrails, bond markets are now sceptical because investors fear political necessity will eventually override fiscal prudence.

Recent scrutiny of Starmer has intensified as he faces a mounting challenge from the left of his party, where dissenting voices are calling for a shift away from “fiscal conservatism” to address funding crises in the NHS and local government.

On top of that, the disastrous appointment of Peter Mandelson as Britain’s ambassador to Washington, and the revelations of his past friendship with Jeffrey Epstein, have severely damaged Starmer’s administration over the last few months.

The problems have culminated in the local elections taking place in 136 authorities for more than 5,000 council seats on Thursday. More than half of the seats up for grabs this week are being defended by Starmer’s party.

Analysts project that Labour will suffer a massive loss and potentially end up over 1,000 councillors down. Any major setback will certainly increase internal pressure to oust Keir Starmer as the leader in which case snap elections could be triggered.

The head of markets at AJ Bell, Dan Coatsworth, explained to Euronews that “investors will be watching bond markets like a hawk over the coming days as the results of the UK local elections are released. Any major setback to Labour will fuel calls for Keir Starmer to be replaced as prime minister and if that happens, bond markets will want to know who is taking over.”

“The obvious challengers, Angela Rayner and Andy Burnham, are seen as candidates who might push for greater government borrowing and spending, which could take gilt yields even higher. Fundamentally, there is a real risk of gilt yields soaring if Labour experiences a wipeout in the local elections,” Coatsworth added.

Speaking to Euronews, the head of fixed interest research at Quilter Cheviot, Richard Carter, conveyed the same sentiment.

“The uncertain UK political backdrop has played a role ahead of the local elections with gilt investors concerned about a Labour Party lurch to the left should Keir Starmer either be replaced or have little choice but to appease his backbenchers in the wake of challenging results.”

Effectively, these local results are no longer just a measure of regional popularity, but a high-stakes verdict of political viability that could determine the long-term stability of British borrowing costs.

The cost to the UK Treasury, businesses and households

For the British government, the consequences of the ongoing bond market shift are measured in billions of pounds as the UK’s debt-interest bill is highly sensitive to fluctuations in gilt yields.

According to estimates from fiscal watchdogs, every 0.25% rise in government borrowing costs adds approximately £2.5 billion (€2.9bn) to the annual debt-servicing cost. A 0.5% increase, which has already been observed this spring, therefore requires the UK Treasury to find an extra £5 billion (€5.8bn) every year just to pay interest.

The rise in gilt yields also has a direct and immediate impact on the real economy as they serve as the benchmark for pricing a vast array of financial products, most notably fixed-rate mortgages.

As yields climb, lenders adjust their swap rates, which inevitably leads to higher monthly repayments for millions of homeowners looking to refinance.

Businesses also feel the squeeze. The cost of corporate loans and commercial credit is often tied to the yield curve. When the state has to pay more to borrow, the private sector follows suit, potentially stifling investment and slowing economic growth.

“A gilt yield shock might be called a stealth tax, but it is not an intentional one. It would be the knock-on effects of bond prices falling and yields going up, which can negatively affect asset prices and tighten financial conditions,” Coatsworth told Euronews.

“Consumers would experience higher mortgage costs and potentially spend less money, particularly if companies scale back hiring if their borrowing costs rise from higher gilt yields, as the two are intertwined. It could also lead to lower public spending and pave the way for tax rises,” Coatsworth added.

Every increase in the cost of debt limits the amount of capital available for private innovation and reduces the disposable income of households already struggling with the cost of living.

Published on
22/04/2026 – 10:40 GMT+2

The cost of living in the UK accelerated throughout March, propelled by a significant increase in petrol and diesel prices following the outbreak of the Iran war.

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According to the Office for National Statistics, the annual consumer price inflation rate moved to 3.3% from 3% the previous month, a shift that matched the forecasts.

This inflationary pressure is largely attributed to an 8.7% monthly jump in motor fuel costs, which represents the sharpest rise seen since the summer of 2022, following Russia’s full-scale invasion of Ukraine.

Beyond the petrol stations, the fallout from higher energy prices has trickled down into airfares and food supplies, complicating the economic landscape for the government and the Bank of England.

UK Treasury chief Rachel Reeves noted that while the conflict is not a domestic one, it is directly pushing up bills for families and businesses across Britain.

Lindsay James, an investment strategist at Quilter, observed that “this morning’s inflation data showed CPI creeping back up to 3.3%, confirming that price pressures are re-accelerating rather than fading away since the outbreak of the war in Iran.”

While international markets have shown some signs of recovery in equity prices, the physical market for oil delivery into Europe remains under immense strain.

Experts suggest that a swift reopening of the Strait of Hormuz is the only viable path to unwinding the current inflationary trend, yet the situation remains volatile and unpredictable.

The Bank of England’s policy dilemma

The timing of this inflation surge is particularly problematic because it coincides with a period of cooling in the domestic economy.

Recent data from the labour market indicates that payrolled employment is falling and economic inactivity is on the rise, while wage growth has started to ease.

For the average British worker, the combination of rising essential costs and stagnating earnings growth creates a challenging environment for real purchasing power.

As for the Bank of England, this sudden spike in prices has disrupted the projected path of beginning to lower borrowing costs this spring.

Prior to the escalation of the Iran war, there was a growing consensus that the central bank would reduce its main interest rate from 3.75% as inflation appeared to be heading back toward the official 2% target.

However, with inflation now expected to potentially hit 4% in the coming months, the Monetary Policy Committee faces a much more difficult decision during its meeting next week.

There is a growing debate among economists regarding whether traditional interest rate hikes are the correct tool to address this specific crisis.

According to James “a rise in rates risks misdiagnosing the problem. This inflationary pulse is being driven by supply disruption, not excess demand. Higher interest rates will do nothing to increase the flow of oil or other goods from the Middle East.”

This sentiment suggests that the Bank of England may choose to maintain its current stance, keeping rates on hold while monitoring whether these price increases begin to manifest in higher wage demands across the broader economy.

He was asked if now is a good time to open an ISA or not

Martin Lewis has offered some advice on how you could organise your savings. He explained the practical tip amid the current uncertainty surrounding the economic impact of the Iran conflict.

The major war has already triggered a surge in oil prices, with fears of long-term consequences for food production and global economic growth.

Mr Lewis was questioned on his BBC podcast about whether now is an opportune moment to open a stocks and shares ISA, given that markets are struggling. When share prices fall, it can present a prime opportunity to invest, as your funds could increase in value when the market bounces back. But if prices decline further, the worth of your holdings could also drop. In response, Mr Lewis outlined the general principle to bear in mind.

He said: “If you’re talking about investing for a long term money that you don’t need for five years and you’re going to do that in a nice spread of investments, like a global tracker fund or an S&P tracker or FTSE tracker, then you just have to accept that you will never know when the perfect time to put money in is.”

£1,000 savings tactic

Nevertheless, he did reveal one strategy you could use to reduce the risk posed by market volatility. Mr Lewis said: “Let’s just imagine you’re putting £10,000 in a stocks and shares ISA, and you’re putting it away for a long time.

“You could put £10,000 in now but you could arrange with the provider that it sits in its cash part. You can hold it in cash, within a stocks and shares ISA, for the moment.

“You could say I’ve got £10,000, over the next 10 months, I’d like you to buy £1,000 a month of that tracker fund that I’m putting my investment into. It’s called pound-cost averaging.

“Because you’re drip feeding the money in, that helps smooth out the short-term volatility of buying at the right moment. So if you’re worried about that volatility, you might want to adopt that tactic.”

Mr Lewis continued in saying that in reality nobody can predict the optimal time to invest. He said: “They are unknowable in the short term, but in a broad spread of investment over the long term, on the balance of probabilities, investing will outperform saving.

“So don’t let the volatility put you off, but you might want to spread the time that you’re putting the money in.”

Major changes to ISA allowances

Savers may also want to note that major changes to ISA allowances are on the horizon. Currently, you can deposit up to £20,000 each tax year, which can be divided as you wish between cash ISAs and stocks and shares ISAs.

From April 2027, you will only be permitted to save up to £12,000 as you choose. The remaining £8,000 will only be available for deposits into investment-based accounts.

Savers aged 65 and over will be exempt from the new regulations, retaining the existing £20,000 allowance. ISAs are entirely tax-free, with no tax liability on any interest earnings or investment gains within these accounts.

Travel expert Mark Wolters warns holidaymakers against saying certain phrases at passport control that could land them in hot water with immigration officers

Holidaymakers are being warned against uttering a ‘fun’ six-word phrase whilst going through passport control. A travel expert cautions this is because you could land yourself in serious trouble with immigration officials.

Mark Wolters, from Wolter’s World, has visited more than 80 countries throughout his travels. He now shares his expert advice for people who find themselves venturing across the globe.

In a recent video, Mark highlighted that travellers must avoid making jokes when passing through international borders.

He explained: “‘I’m going to stay here forever, I love your country’. That sounds like a fun thing to say to the passport control officer when you come into a country, but I want to tell you, that is something you don’t ever want to say when you come across a border.”

He emphasised that you shouldn’t “joke around” when at passport control. He encourages travellers to respond to them “politely”, reports the Express. He continued: “Don’t add in the dad jokes.

“I know for me, my go-to when they’re like, ‘What are you going to do here?’ I’m like, I’m going to help the British economy by spending lots of money.

“Yes, it’s a good dad joke but it’s best to be like, ‘I’m here for tourism with my family’. That’s one of those things, you have to realise those passport and those border officers aren’t allowed to have humour, they’re there doing their job.”

Mark explains that border force officers are stationed there to ensure the “wrong people aren’t coming in”, which means it’s unwise to mess about. He suggests you can make your “life easier” by staying composed and courteous.

Mark cautions there are certain phrases you should “never” utter at security. He continued: “You don’t ever say the word bomb, you don’t say human trafficking, you do not joke about drugs, you do not joke about overstaying, like, ‘I want to stay here forever’.

“You do not say any of those things because those are the trigger words where they go, ‘Oh wait, we need to do something’. Even if they know you’re joking, they don’t have a choice.”

The specialist also recommends people keep their passport out until they’ve cleared security. He mentions he’s frequently witnessed travellers packing away their documents and wandering off, only to be summoned back by passport control.

He stated: “If you’re putting your documents away before they feel it’s right, they could think, ‘Oh this person’s nervous, they’re trying to get away quicker’. That can lead to other questions, so just wait until they dismiss you.”

Holidaymakers are also advised to ensure they’ve got their accommodation sorted. He notes that arriving without lodgings arranged can frequently trigger “more questions” and raise concerns about trafficking.

“I sent my itinerary to myself, so we can say, ‘Oh we’re staying at the Marriott Amsterdam on this street here’,” Mark elaborates. “That makes it a lot easier because that’s one of those typical questions they might ask, so it’s good not to be vague.”