Why are UK borrowing costs decreasing?

The UK's borrowing premium is easing as markets gain confidence in the government's fiscal approach, particularly following announcements in the autumn budget.

What is the IPPR's recommendation for the Bank of England?

The IPPR recommends that the Bank of England pause its sale of government bonds, which they believe adds unnecessary pressure to the gilt market.

How much has the UK paid in interest payments?

The UK has spent £92 billion on interest payments so far in the current financial year.

Home / Business and Economy / UK Borrowing Costs Drop as Markets Gain Trust

UK Borrowing Costs Drop as Markets Gain Trust

10 Dec, 2025

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Summary

UK's borrowing premium over peers is easing, says IPPR.
Rachel Reeves's budget enhanced confidence in fiscal approach.
Bank of England urged to pause bond sales to lower costs.

UK Borrowing Costs Drop as Markets Gain Trust

The premium the UK pays to borrow money compared to international peers is showing signs of reduction, according to the Institute for Public Policy Research (IPPR). This development is attributed to increasing market confidence in the current government's fiscal strategy. The thinktank highlighted that Chancellor Rachel Reeves's commitment to significantly increasing financial headroom by 2030 has begun to reassure bond markets about Labour's approach.

Previously, UK government bond yields were higher than those in the US and eurozone due to a perceived "credibility problem" regarding fiscal policy adherence. This has cost taxpayers an estimated £7 billion annually. The IPPR pointed to the 2022 mini-budget and a history of changing fiscal rules as reasons for this lack of trust.

However, the autumn budget appears to have positively impacted the UK's premium against the eurozone. The IPPR suggested that pausing the Bank of England's rapid sale of government bonds could further lower borrowing costs, an action mirrored by other major central banks.