UK gilt auction snub pushes borrowing costs higher ahead of Autumn Budget

Borrowing costs jumped on Thursday after the Debt Management Office sold £1.25 billion of 2034 gilts at auction, a sale that drew muted demand from global investors. The gilt yielded 4.50 percent, with a bid-to-cover ratio of 2.9 and an average yield of 4.584 percent, underscoring waning appetite for government debt as Britain prepares its Autumn Budget. Market participants said the weak result adds to pressure on Chancellor Rachel Reeves as she seeks to restore credibility to the public finances.

July’s sale of the same bond attracted stronger demand, with a cover ratio of 3.32 and an average yield of 4.553 percent. The latest result pushed gilt yields higher across the curve, with the 10-year note up about five basis points and the 30-year bond up about five basis points. The 10-year yield traded around 4.72 percent, up 73 basis points in the past 12 months, while the 30-year yield was about 5.54 percent, up 97 basis points over the same period.

Analysts said the auction reflected investors' growing impatience with uncertainty surrounding Reeves’ fiscal plans. Lale Akoner, a global market analyst at eToro, said the result showed investors were losing patience with uncertainty and that volatility could persist until the Budget provides clarity. The Budget will need to deliver credible fiscal tightening, otherwise the UK risks testing investor confidence further, and income-focused investors may be drawn to higher yields even as fiscal risk remains.

Long-term gilt yields had eased earlier this year but have since moved higher as borrowing expands and the Bank of England signaled a slower path to rate cuts. Tony Whincup, head of investment specialists at TrinityBridge, said the data highlight the tension between higher spending and debt costs, while public-finance data can be volatile from month to month, which means the upward pressure may not persist in the medium term. Still, the latest data could heighten the case for tax increases if Reeves must shore up the fiscal hole to meet stated rules.

Kate Marshall, lead investment analyst at Hargreaves Lansdown, said the government faces pressure to borrow more for energy and infrastructure, potentially leading to more gilt issuance in the years ahead. Inflation remains around 3.8 percent, above the Bank of England’s 2 percent target, complicating policy choices. Cutting interest rates or increasing spending could stimulate growth but risk fueling inflation; keeping a tighter stance may help cap inflation but weigh on growth.

Even so, growth remains weak and inflation remains above target, keeping gilt investors cautious. Long-end yields have risen as the market awaits clearer signals on fiscal discipline and the path for BoE policy. The Bank of England has damped expectations for rate cuts next year, reinforcing the need for a credible consolidation plan in the Autumn Budget.

With the Budget due in November, Reeves faces a test of whether fiscal plans can restore credibility and lower borrowing costs. If the measures fail to reassure investors, markets could demand higher yields and the government may need to issue more gilts in the coming years to fund any new commitments.