# UK borrowing costs soar as gilt yields hit 6% for first time since 1998

By Andrew Prosser — 2026-10-01

Andrew Prosser, head of investments at InvestEngine, insists rising gilt yields – which have hit six per cent for the first time since 1998 – put pressure on Chancellor John Healey ahead of the Budget later this month.

He said: “Rising gilt yields make life a lot harder for John Healey before he has even stood up at the despatch box.

“Higher borrowing costs mean less room to manoeuvre, and every decision in this Budget will be closely watched by the bond market.

“While this isn’t just a UK story (bond markets around the world are pricing in stickier inflation from the energy shock and heavier government borrowing), the UK goes into this Budget with very little room to absorb it.

“In addition, if markets lose confidence in the government’s plans, yields could rise further and push the debt interest bill even higher. Markets will want credibility above everything else.

“For investors, it’s worth remembering that higher gilt yields aren’t all bad news. Anyone buying long-dated gilts now is locking in income levels that haven’t been available in decades.

“There’s also a tax angle. Gilts held directly are exempt from Capital Gains Tax (CGT), and with speculation that CGT rates could change in the Budget, that exemption could become even more valuable.

“Bond prices move in the opposite direction to yields, so if yields fall from here the price of a gilt would rise, and investors could keep that capital gain tax free on top of the income they receive.

“As ever, it’s sensible to look past the short-term noise, keep a diversified portfolio and focus on your long-term goals rather than trying to second-guess the Budget.”

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