Macro Policy Outlook Q3 2025

UK Government borrowing costs have once again been in the headlines. Recent moves have, however, been overblown: since benchmark 10-year yields peaked at post-financial-crisis highs of 4.9 per cent in January, they have fallen back. And while it’s true that 30-year yields have reached their highest level since 1998, such long horizons are less important to the Government, and changes reflect lower pension-fund demand. But the fact that UK borrowing costs were the highest among OECD rich countries in August is alarming. What makes this exceptionalism more puzzling is that, on the face of it, we are far from the worst fiscal offender: debt is solidly mid-table compared to other rich countries and there is at least a plan to bring borrowing down, unlike the US or France, even if that plan is taking longer than expected. So in this edition of the MPO we take a longer view, unpacking the reasons why the rise in UK yields since the pandemic has been larger here than elsewhere, and discussing how policy should respond.