The price of long-term government debt jumped to its highest level since 1998 on Tuesday as investors grew nervy about the UK’s economic prospects.

The yield on the 30-year gilt, which reflects the price of government borrowing, hit 5.28 per cent on Tuesday in the wake of an gilt auction conducted by the Debt Management Office (DMO).

The DMO sold £2.25bn of long-term government debt at a yield of 5.2 per cent, making Rachel Reeves the first Chancellor since Gordon Brown to oversee a bond auction with an average yield of over five per cent.

The auction attracted the lowest level of demand since December 2023, suggesting investors are less willing to buy longer-term UK government debt.

Yields and prices move inversely. With demand for gilts lower, prices fall which pushes up the yield.

The sell-off in UK government debt is not unique among global peers. Government borrowing costs have increased around the world in recent months, reflecting fears about elevated debt levels and the potential inflationary impact of Donald Trump’s trade policies.

However, the sell-off in the UK has been accentuated by concerns about the scale of government debt issuance and the domestic economic outlook.

The Chancellor wants to borrow £297bn through financial markets this fiscal year, the second highest level on record.

Markets also expect fewer interest rate cuts in 2025 due to fears about the potential persistence of inflation. This has put further upward pressure on gilt yields.

Analysts have suggested that higher gilt yields could wipe out the Chancellor’s headroom when the Office for Budget Responsibility (OBR) prepares new economic forecasts in March.

Reeves left herself just £9.9bn against her key fiscal rule to ensure that day-to-day spending is met by tax receipts. Andrew Goodwin, chief UK economist at Oxford Economics, estimated that Reeves had already lost about £6bn of this breathing space due to higher gilt yields.

“The wiggle room was already very small and it makes it even smaller,” he said.