Gilt Market Woes Threaten UK Growth Plans as Yields Near Two-Decade Highs

The UK's gilt market is causing concern as yields approach levels last seen nearly two decades ago. The yield on the 10-year gilt stands at around 5.16%, making every new spending commitment more expensive and reducing the government's room for maneuver.

This has implications for Chancellor of the Exchequer Healey's growth plan, which includes a £150 million British Business Bank fund for fast-growing companies in northern England. While this amount is small compared to the size of the UK economy, the market is more focused on the government's overall fiscal policy and its ability to support growth without adding to borrowing pressure.

The gilt market matters because it directly affects household borrowing costs. Mortgage rates have started moving higher as gilt yields rise, with major lenders increasing some fixed-rate products. This means that higher government borrowing costs are quickly becoming higher household borrowing costs as well.