The governor of the Bank of England has cautioned against “exaggerating” the impact of a steep rise in the UK’s long-term borrowing costs, which he said was part of a global trend.
Andrew Bailey told MPs the Treasury had continued to borrow at the same interest rate for most of the year despite a rise in the rate on 30-year bonds to a 27-year high.
Bailey’s intervention will bring some relief to Rachel Reeves, who is under pressure from rising debt financing costs ahead of a budget which on Wednesday she set for 26 November.
The governor said the government’s switch to borrowing over five or 10 years rather than 30 years meant its borrowing costs had remained flat this year, and commentators should not “over-focus” on the figure.
“There is a lot of dramatic commentary on this but I wouldn’t exaggerate the 30-year bond rate,” he said. “It’s a number that gets quoted a lot. It’s quite a high number. It is actually not a number that is being used for funding at all at the moment.”
He said the increase in the yield on 30-year bonds was governed largely by pension funds moving away from long-term financial products.
“You have seen a steepening of yield curves across the whole developed world really … the underlying driver of this is global,” he said.
Yields are a measure of the interest rate that investors demand when lending to a government or company.
Speaking to the Treasury select committee, Bailey also said there was “considerably more doubt” about when the Bank will be able to cut interest rates again.
Bailey, who was in the narrow majority voting for last month’s cut from 4.25% to 4%, said: “Although we’ve taken a further step, and although I think that the path will continue to be downwards, gradually over time, because policy is still restrictive … there is now considerably more doubt about exactly when and how quickly we can make those further steps.”
He added: “That’s the message I wanted to get across. Now I think actually, judging by what’s happening to market pricing, I think that message has landed.”
A Reuters poll of economists last month showed a median expectation for a further rate cut before the end of this year and another quarter-point reduction in the first quarter of 2026.
Since then, UK inflation has picked up to 3.8%, nearly double its target and the highest among the G7 advanced economies.
Recent forecasts by the Bank show inflation reaching 4% later this month and not returning to 2% until the second quarter of 2027.
Reacting to more recent data, financial markets expect the Bank to delay the next cut in the cost of borrowing to April 2026.
Bailey’s comments, which coincided with calmer trading on global bond markets and a fall in long-term yields, helped the pound rise against the dollar to $1.34, partially reversing falls earlier this week.
Stock markets across Europe also rose as investors welcomed less jittery trading in the bond markets.
In London, the FTSE 100 share index rose 61 points, or 0.67%, to 9,177, recovering most of Tuesday’s 80-point fall. In Frankfurt, Germany’s DAX gained 0.5%, while France’s CAC jumped almost 1%.
Asked by MPs about attacks on the Federal Reserve by Trump in recent weeks, Bailey said he was “very concerned”.
He said: “This is a very serious situation and I am very concerned because the Federal Reserve is the central bank for the world’s strongest economy … it has built up a very strong reputation for its independence and for its decision-making.”
The Bank chief said: “Monetary stability and financial stability underpin the foundations of policy” that enables governments to make political decisions.
“I think what we’re now seeing is people saying we should be able to trade off the foundations for those other decisions, and I’m afraid I just think that is a very dangerous road to go down,” he warned.
“The job of an independent central bank is to provide those foundations, to take independent decisions to do it … that’s how it works, that’s how it should work.
“And so the threats to that I take very seriously.”
