Good question — the UK’s borrowing costs (yields on government bonds, or “gilts”) have been unusually high compared to other advanced economies lately. A few key reasons explain this:
1. Inflation has been sticky
UK inflation has fallen more slowly than in the US or eurozone, especially in services and food.
Sadly, Investors expect the Bank of England (BoE) to keep interest rates “higher for longer” to tame it. That pushes up gilt yields.
2. Fiscal policy concerns
Government borrowing is still high after Covid support, the energy price shock, and tax cuts/extra spending pledges.
Markets remember the 2022 “mini-budget” crisis (under Liz Truss), which The BOE accepted blame for a panic interest rate rise, this spooked investors and raised the risk premium on gilts. Even though things have stabilised, confidence hasn’t fully recovered.
3. Structural economic weakness
The UK has sluggish growth prospects (low productivity, Brexit-related trade frictions, ageing population).
Weak growth + high borrowing = investors demand higher returns to lend.
4. Global factors
US bond yields are also high, dragging others up. But the UK premium is larger because of the domestic risks above.
5. Demand dynamics
Some traditional big gilt buyers (e.g. pension funds, Bank of England via QE) aren’t buying as much.
The BoE is actually selling bonds (quantitative tightening), adding supply to the market.
👉 Put simply: markets are nervous about the UK’s mix of high debt, weak growth, and sticky inflation. So investors ask for higher interest rates to hold UK debt.
Here’s the current state of play:
Current Gilt Yield Levels (UK vs US vs Germany)
UK 30-year gilt yield is hovering between 5.70 % and 5.75 %, touching levels not seen since 1998.
Financial Times
Barron’s
Reuters
US 30-year Treasury yields are close to 5 %, also nearing multi-year highs.
Reuters
Barron’s
German long-term bond yields (e.g., 30-year Bunds) are significantly lower—around 3.4 %.
Barron’s
The Times
Meanwhile, the UK 10-year gilt yield is about 4.81 % as of September 3, 2025.
Trading Economics
The spread between UK and Germany 10-year yields stands at approximately 185 basis points.
Investing.com
World Government Bonds
What It All Means
UK borrowing costs remain the highest in the G7, particularly for long-term debt.
The cost difference compared to Germany is substantial, with long-term UK gilts demanding far higher yields.
Reasons Behind Elevated UK Borrowing Costs
Heightened Fiscal Concerns
Investors are worried about the UK government’s fiscal strategy and ability to control its budget, especially ahead of the autumn Budget.
The UK faces a £20–40 billion fiscal shortfall, forcing markets to demand extra yield to compensate for perceived risk.
Political Uncertainty & Reduced Confidence
Recent government reshuffles and broader political volatility have shaken investor confidence.
Weak Demand & Quantitative Tightening
Traditional buyers like pension funds and central banks have pulled back, while the Bank of England is winding down bond purchases (i.e., unwinding quantitative easing).
Risk Premium (Term Premium) Rises
Elevated long-term yields reflect higher risk premiums as investors require more compensation amid uncertainty.
Global Spillovers & Yield Correlation
UK gilt yields have largely followed rising US Treasury yields—an example of yield contagion.
CEPR
However, the increase in UK yields has exceeded that of Germany, pointing to additional local pressures.
Persistent Inflation & Weak Growth Outlook
Inflation remains relatively high and sticky, prompting expectations of tighter monetary policy. Coupled with sluggish growth, this makes lending riskier and more expensive.
At a Glance
Country 30-Year Bond Yield 10-Year Bond Yield Key Observation
UK ~ 5.70–5.75 % ~ 4.81 % Highest among G7; steep term premium
US ~ 5.0 % — Pressure from global trends
Germany ~ 3.4 % Significantly lower Reflects stronger fiscal and inflation outlook
In summary, the UK’s borrowing costs are elevated due to a combination of fiscal fragility, political uncertainty, weaker investor demand, and global spillover effects—all contributing to a higher yield premium, especially on long-term debt.