UK 30-year borrowing costs hit highest since 1998 amid oil surge and political instability
Newsflash: Britain’s long-term borrowing costs have hit their highest level since 1998, as the Iran war drive up energy costs and speculation swirls over prime minister Keir Starmer’s future.
The yield, or interest rate, on 30-year UK bonds has risen to 5.76%, above the 27-year high set last September when worries about the UK’s finances was hurting the country’s bonds.
Bond yields rise when prices fall.
Today’s bond sell-off comes after a jump in the oil price yesterday, as tensions rose in the Middle East as Donald Trump sent warships to break Iran’s strait of Hormuz blockade.
The failure to reopen the strait of Hormuz has driven oil prices to their highest levels in years, pushing up inflation and threatening growth – which could push up government borrowing.
There may also be concerns in the City that the government’s commitment to its fiscal rules could weaken if Starmer were forced out of office after this week’s local elections.
On Friday, the Guardian reported that allies of Greater Manchester mayor Andy Burnham say he has a credible plan to return to Westminster “within weeks”.
Analysts at ING warned last week that UK bond yields could rise further on a deeper political crisis, telling clients:
Britain’s local elections come at a particularly sensitive moment for UK financial markets. Government bond – gilt – yields have just risen above 5% for the first time since 2008, a time when the economy was growing significantly faster than it is today.
Much of the latest spike is down to inflation, but the politics can’t be ignored. Prime Minister Keir Starmer is in a fight for political survival and a bad election night on 7 May could prove fatal.
Key events
What would a Labour leadership challenge mean for bond markets?
Richard Partington
Who calls the shots on the bin collections in Sunderland, potholes in Hackney, or schools in Cardiff is not normally of interest to City traders in the multitrillion-pound sovereign bond market.
But for those dealing in UK government debt, Thursday’s local and devolved government elections are significantly more important than usual, amid speculation that a dire showing for Keir Starmer’s Labour party could topple him as prime minister.
“Usually local elections should not be a market relevant event, but this has indeed become one,” said Sanjay Raja, the chief UK economist at Deutsche Bank.
“Mainly as the repercussions, not just from a leadership challenge, but also any changes to fiscal policy and any pressure on fiscal rules the chancellor had signed up to. That is what the market is really signed up to.”
Here’s the full story:
RSM UK: Why local elections could reignite political risks for economy
A change in UK prime minister – or just the prospect of a new PM – could add to the risks facing the UK economy, a key factor why borrowing costs are rising ahead of Thursday’s local elections.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, explains why the markets could react badly if Labour have a bad election (as appears likely):
Firstly, in the near-term, speculation over when Sir Keir Starmer will be replaced would be enough to raise uncertainty and dampen activity by itself. Second, a messy leadership contest that opens Pandora’s box of potential tax hikes would raise uncertainty even further, potentially prompting firms to cut back on investment, and households to ramp up savings. Indeed, speculation at the last two budgets about tax increases dampened growth in the second half of both the last two years. In H1 2024 and H1 2025, growth averaged 0.7% and 0.4% respectively, before slowing sharply to 0.3% and 0.1% in H2.
“Secondly, whoever replaces Sir Keir is likely to want to spend more. The front runners are currently Angela Rayner and Andy Burnham, both of whom have indicated that they would favour a more interventionist approach to the economy, and would like to see government spending rise further. This has raised red flags among gilt investors and is one reason gilt yields – the cost of government borrowing – have risen above 5% for the first time since 2008.
Even if Starmer stays on as PM, Pugh adds, the government will face greater pressure to support households and businesses with energy bills – that would add to spending levels, pushing up bond yields.
The yield on 10-year UK government bonds – seen as the benchmark for borrowing costs – is rising too.
10-year bond yields are up 12 basis points (0.12 of a percentage point) at 5.09%, its highest level since late March (when they were the highest since July 2023).
That reflects concerns that the Iran war could push up UK inflation, putting pressure on the British economy.
The best-case outcome from this week’s local elections for UK assets would be a relatively contained Labour defeat, which allows PM Starmer to stumble on for a short while longer.
So argues Michael Brown of brokerage Pepperstone, who wrote this morning:
Though such a scenario may lead to a relief rally in the GBP [the pound] and in Gilts, any such move is likely to prove relatively short-lived, considering that the present political inertia will likely continue. In fact, for markets, under this scenario, the question would likely rather quickly become one of when sticking with Starmer, and a Government that is struggling to govern, is a worse outcome than changing leader?
That said, markets in the here and now are likely to react adversely to the prospect of a Labour leadership challenge, and the ousting of PM Starmer, for a couple of reasons.
Firstly, as we all know, markets hate any sort of uncertainty, especially in the political realm, and particularly with the UK having endured more than its fair share of Westminster upheaval in recent years, having already had six different Prime Ministers in the last decade. Clearly, an uncertain political backdrop not only makes it considerably harder for market participants to accurately discount the future policy path, but is also likely to lead to corporates delaying hiring and investment decisions, in turn posing a headwind to economic growth at large.
Secondly, while a leadership challenge would be a drawn out and uncertain process, it’s overwhelmingly likely that such a challenge would ultimately result in whoever the new leader is replacing Chancellor Reeves with their own choice. Although market participants have, generally, taken something of a dim view of Reeves’s endless ‘tax and spend’ policies, the prevailing opinion remains that Reeves is the ‘least bad’ option among Labour MPs, accounting for her adherence to strict fiscal rules. Any replacement for Reeves is not only likely to tear up those rules, but also to embark on a much looser fiscal stance, considerably increasing government spending, public borrowing, and running an even-larger budget deficit. Any tax hikes announced to fund those measures would at this stage be counter-productive, with the tax burden already on its way to a record high.
Combined, then, UK assets would have to deal with a rather grim combination of near-term political uncertainty, coupled with relative certainty of a further fiscal deterioration over the medium-term. This, quite clearly, poses substantial downside risks to the GBP, as well as to long-end Gilts, which are already on very fragile ground indeed.
UK 30-year borrowing costs hit highest since 1998 amid oil surge and political instability
Newsflash: Britain’s long-term borrowing costs have hit their highest level since 1998, as the Iran war drive up energy costs and speculation swirls over prime minister Keir Starmer’s future.
The yield, or interest rate, on 30-year UK bonds has risen to 5.76%, above the 27-year high set last September when worries about the UK’s finances was hurting the country’s bonds.
Bond yields rise when prices fall.
Today’s bond sell-off comes after a jump in the oil price yesterday, as tensions rose in the Middle East as Donald Trump sent warships to break Iran’s strait of Hormuz blockade.
The failure to reopen the strait of Hormuz has driven oil prices to their highest levels in years, pushing up inflation and threatening growth – which could push up government borrowing.
There may also be concerns in the City that the government’s commitment to its fiscal rules could weaken if Starmer were forced out of office after this week’s local elections.
On Friday, the Guardian reported that allies of Greater Manchester mayor Andy Burnham say he has a credible plan to return to Westminster “within weeks”.
Analysts at ING warned last week that UK bond yields could rise further on a deeper political crisis, telling clients:
Britain’s local elections come at a particularly sensitive moment for UK financial markets. Government bond – gilt – yields have just risen above 5% for the first time since 2008, a time when the economy was growing significantly faster than it is today.
Much of the latest spike is down to inflation, but the politics can’t be ignored. Prime Minister Keir Starmer is in a fight for political survival and a bad election night on 7 May could prove fatal.
Shares in Budweiser producer Anheuser-Busch InBev have shares jumped almost 8% after it reported a surprise rise in sales, and said it hoped to profit from this month’s men’s football world cup.
Anheuser-Busch InBev, which also makes Corona and Stella Artois, defied expectations of a small drop in sales this morning, by reporting a 0.8% rise in sales by volume in the January-March quarter.
The companby also said it was “well positioned” to capitalise on events such as this summer’s Fifa World Cup.
CK Hutchison sells its stake in UK mobile operator to Vodafone in £4.3bn deal
More than 25 years after securing a slice of Britain’s mobile spectrum through its landmark 3G auction, Hong Kong conglomerate CK Hutchison is bowing out of the sector.
Vodafone is to take full control of the UK’s biggest mobile operator in a £4.3bn buyout deal with CK Hutchison, which has agreed to sell its 49% stake in VodafoneThree – a network with more than 27 million subscribers – to its partner Vodafone.
CK Hutchison held a controlling stake in Three before it announced a merger with Vodafone’s British telecoms network in 2023.
Three can trace its existence back to the UK’s surprisingly lucrative auction of 3G spectrum in 2000, when the UK’s existing mobile operators and a large handful of other telecoms operators battled for the right to offer new, faster mobile phone services to UK consumers.
Hutchison Whampoa, as it then was, secured the licence set aside for a new entrants for a cost of £4.385bn, and went on to launch its Three mobile service.
The entire auction, of five licences, raised over £22bn, astonishing the Treasury who had only expected to raise £5bn.
[there’s a great history of the 3G auction, here. It really was quite dramatic!].
Today Canning Fok, deputy chairman of CK Hutchison, says:
“Our Group was one of the first in the world to invest in 3G mobile telecommunications with the establishment of 3UK in 2000 and introduce ground-breaking mobile broadband telephony to consumers.
The company has grown from a start-up mobile operator, and through merging and forming the present VodafoneThree, has become the number one operator in the UK by subscriber numbers and a market leader in the delivery of telecommunications products and services to UK consumers.
The present transaction now allows us to realise the value of our investment in VodafoneThree for the benefit of the Group and our shareholders.”
UK car sales jump: what the experts say
Here’s some reaction to the 24% rise in UK car sales in April:
James Hosking, managing director of AA Cars:
“April’s figures suggest the new car market has maintained momentum beyond the March plate-change boost, which is an encouraging sign for the industry.
“While March typically does the heavy lifting, sustained demand into April points to underlying resilience among buyers, even as economic pressures remain.
“However, the market is still operating against a complex backdrop. Persistently high fuel prices, driven in part by ongoing tensions in the Middle East, are continuing to influence consumer decisions.
“That’s helping to accelerate interest in electric vehicles, as drivers look for more certainty over running costs. For many, the appeal of EVs is no longer just environmental, but increasingly financial.
Colin Walker, head of transport at the Energy & Climate Intelligence Unit (ECIU):
“With prices at the pump rising as a result of war in the Middle East, it’s no surprise to see EV sales jumping 59% in April. Drivers are voting with their feet seeking to shield themselves from these sudden jumps in the oil price, and save hundreds – even thousands – of pounds a year in running costs. Just recently Autotrader pointed out that EV sticker prices are now cheaper on average than petrol cars.
“With more than a quarter of new cars sold now EVs this reduces the UK’s demand for oil boosting energy security, with electric cars increasingly powered by electricity generated in British wind and solar farms. Calls from parts of the car industry to slow down the UK’s switch to EVs risks leaving our car industry in the slow lane, our drivers worse off, and the UK less energy secure. This is another step on the road to achieving net zero emissions.”
Ian Plummer, chief customer officer at Autotrader:
“Despite a backdrop of geopolitical instability, UK car buying positivity continued apace in April with the UK’s new car market seeing a massive year-on-year increase, and an April monthly performance that is the nearest we’ve been to pre-pandemic highs. While this year-on-year growth is in part driven by comparison with last years’ changes to VED rates and Expensive Car Supplement, with new car enquiries surging by 43% on Autotrader, it looks increasingly as if the higher levels of competition from new brands entering the market, a continued surge of exciting new launches – as well as enhanced consumer offers – are driving car buyers back into showrooms in ever bigger numbers.
As well as a strong month for electric sales, April also marked two consecutive months of average new EV pricing sitting below petrol, ending the month with a £455 price gap – up from £296 in March.”
Mortgage affordability ‘at tightest level since 2008’
UK mortgage affordability has reached its tightest level since 2008, a new report shows, even before the surge in borrowing costs since the Iran war began.
Industry group UK Finance reports that in 2025, the average homebuyer spent 21.3%% of their gross income on mortgage repayments, the highest level seen since 2008.
However, there are “very marked regional disparities” within the UK.
UK Finance says
In general, there is a delineation between relatively affordable housing in the north of England and the other UK nations, compared with the south of England where affordability pressures are, overall, much more acute.
The report shows that borrowers in North Norfolk in East Anglia, and in the London Borough of Hillingdon, both spent over a quarter of their gross income on mortgage repayments.
The remaining eight of the top 10 least affordable places were in the London commuter belt, in places like Luton, Slough and Spelthorne.
At the other end of the scale, seven of the 10 most affordable local authorities were in Scotland.
The UK is on track to miss its targets for electric car take-up, the SMMT fears.
The SMMT estimates that BEVs will make up 32% of the market in 2027, “leaving a persistent gap of around six percentage points against the mandate target”.
It says today:
Year to date, BEVs comprise 23.1% of the overall new car market, significantly short of the 33% required by the Zero Emission Vehicle Mandate, despite billions in manufacturer discounts and the introduction of the Electric Car Grant last year.
Chart: UK car sales by fuel type in April
UK car sales jump as two millionth EV registered
Newsflash: UK car sales jumped in April, driven by stronger demand for electric cars.
The UK new car market grew by 24.0% year-on-year in April, with 149,247 new cars registered in the month, according to the Society of Motor Manufacturers and Traders (SMMT).
That’s the best April for car sales since 2019, and follows a notably weak April in 2025, when new vehicle tax increases came in.
The SMMT also report that the UK’s two millionth battery electric car was registered in April, which they call a “market milestone”.
Battery electric car registrations were up 59% year-on-year in April, while plug-in hybrid registrations rose 46.4% and hybrid electric vehicles registrations were up 18.8%.
Sales of petrol cars rose 8%, while diesel car sales dropped 1%.
The SMMT has revised up its forecast for total new car registrations this year to 2.093m. up from January’s forecast of 2.048m.
However, it has cut its forecast for battery-powered cars’ share of the market to 26.8%, from 28.5%, “following an underperforming first quarter”.
The industry group is worried that concerns over inflation, higher energy prices and the resultant negative impact on the cost of living could hit demand for electric cars, even though the jump in energy costs since the Iran war began is boostering interest in EVs.
Mike Hawes, SMMT chief executive, says:
April’s rebound is welcome, but underlines just how significantly fiscal changes can influence the market. Two million electric car registrations is a considerable milestone to celebrate, although natural demand is still well below the level demanded by the mandate.
The mounting cost of compliance threatens to limit consumer choice, overall decarbonisation and the sector’s competitiveness so the need for a rapid review of the transition to align policy with market realities is unchanged, else Britain’s attractiveness as a vehicle market and manufacturing hub will be put at risk.
Full story: HSBC profits fall amid $400m fraud-related charge and Iran war
Kalyeena Makortoff
HSBC has taken a $1.3bn (£961m) hit to profits, fuelled by the fallout from the US-Israel war on Iran and fraud in the troubled private credit sector.
The London-headquartered bank said profits fell 4% in the first three months of the year, dropping $100m to $9.4bn, compared with the same period in 2025. Revenue increased 6% to $18.6bn.
The profit decline was linked to a jump in the potential losses it could see on soured loans to $1.3bn, which included $300m specifically linked to the impact of the conflict in the Middle East.
HSBC also reported a $400m “fraud-related, secondary, securitisation exposure” in the UK, related to its investment banking division. The bank’s chief financial officer, Pam Kaur, explained that the charge involved loans that HSBC had made to an unnamed private equity group, which was then exposed to private credit-related loans.
The case reportedly relates to the home loan lender Mortgage Financial Solutions (MFS), according to the Financial Times, which cited people familiar with the matter. HSBC refused to confirm the name of the firm involved in the suspected fraud.
More here:
Philippines inflation hits three-year high as Iran war drive up costs
Over in the Philippines, inflation has soared to a three-year high as the cost of food and energy is driven up by the Iran war.
Philippines inflation jumped to 7.2% in April, up from 4.1% in March, the Philippine Statistics Authority reports, the highest rate since March 2023.
Food and non-alcoholic beverage inflation more than doubled to 6.5%, up from 3.1% n March.
Transport inflation jumped to 22.1% in April, up from 9.6%, while the index for housing, water, electricity, gas and other fuels rose to 7.8% from 4.3% in March.
Analysts have suggested the Philippine central bank may need to implement more aggressive interest-rate hikes to cool this inflationary surge.
