
LONDON, UK – March 26, 2025: British Chancellor Rachel Reeves left 11 Downing Streets before announcing a spring statement in the House of Commons in London, UK on March 26, 2025.
Wiktor Szymanowicz | Future Publishing | Getty Images
The UK government is planning to increase public spending – but market observers warn that the risks of the proposal have further inflated the troubles in the bond market by the country’s $143 billion in interest payments per year.
British Finance Minister Rachel Reeves announced on Wednesday that the government will Inject billions of pounds Enter the defense, healthcare, infrastructure and other economic sectors in the coming years. But one day later, official data showed the UK economy Shrinking by 0.3% than expected In April.
Funding public expenditures In an economy without growthgives the government two options: raise funds through taxes, or assume more debt.
One way it can borrow is to issue bonds (called gilding in the UK) to the public market. By purchasing gilding, investors essentially lend to the government, and the returns of bonds represent the returns investors can expect.
The yield and price of gold plating move in the opposite direction – so the yield on the price increase is lower and vice versa. This year, GILT production has experienced turbulent moves, and investors are sensitive to geopolitical and macroeconomic instability.
Long-term loan fees for the UK government Up to a multi-year high in Januaryrate of return 20- and 30 years of gold plating Continue to hover above 5%.
Official estimates show that the government is expected Spend over £100.5 billion (US$142.9 billion) to pay interest In fiscal 2025, its Treasury bonds (9.4 billion pounds higher than last fall budget period) and annual interest of £111 billion in 2026.
The government did not reveal on Wednesday how its newly unveiled spending hike would be funded, nor did it respond to CNBC’s request for comment on the money. But, in her Last fall budgetReeves outlines plans to increase taxes and borrowing. Follow the budget, Minister of Finance ensure During the current Labour government term, don’t raise taxes again, saying the government “don’t have to make budgets like this anymore”.
Andrew Goodwin, chief economist at Oxford Economics, said the UK government could be forced to develop further through its spending plans, NATO Calm down Raising member states’ defense spending targets to 5% of GDP, once was Winter fuel payment for seniors and Other possible welfare reforms Be counted.
In addition, the UK’s Budget Responsibility Office may make “adverse revisions” to the July economic forecast, which will lead to lower tax revenues and higher borrowing, Goodwin said.
“If the recent financial markets are priced to hold, the cost of debt services will be about £2.5 billion ($3.4 billion) higher than at £2.5 billion ($3.4 billion) Spring Statement“Goodwin warned in a note Wednesday.
“Very vulnerable situation”
Mel Stride, who served as shadow minister in the UK’s opposition government, told CNBC’s “Squawk Box Europe” on Thursday that the spending review raised questions about whether “large amounts of borrowing” would involve government fiscal policy strategies.
“(government) lending has consequences on higher inflation in the UK … so longer interest rates are higher,” he said. “This increases Debt Hill, which is the cost of service at £100 billion (£) per year, which is twice as much as we spend on defence.”
“I’m afraid the overall economy is in a very weak position to bear the expenditure and borrowings announced by the government,” Stride added.

Stride believes Reeves is almost certain to “certain” again raising taxes in the next budget announcement it deserves in the fall.
“We end up being in a very vulnerable state, especially when you get tariffs around the world,” he said.
Rufaro Chiriseri, head of fixed income at British Columbia wealth management company British Isles, told CNBC that the rising borrowing costs put Reeves “an already small fiscal net worth in danger.”
“It could have a snowball effect as investors may become nervous and hold UK debt, which could lead to further sell-offs until fiscal stability is restored,” he said.
NetWealth Chief Investment Officer Iain Barnes also told CNBC on Thursday that the UK is in a “fiscal vulnerable state, so there is limited room for maneuver”.
“The market knows that if growth is disappointing, then this year’s budget may have to impose higher taxes and increase borrowing to fund spending plans,” Barnes said.
However, April Larusse, an investment expert at Insight Investment, believes there are ways to control the burden of debt services.
She said the UK Debt Management Office, which issued GILT, had the scope of reshaping the issuance model (the maturity and type of issued gilt) to help the government control its borrowing costs.
“Since the average yield on gold plating for 1-10 years is C4%, yielding 5.2%, and yielding 5.2%, there is a range that makes debt financing costs more affordable,” she explained.
However, Larusse noted that the UK government’s debt payments are estimated to be equivalent to about 3.5% of GDP for the current fiscal year, and overspends may be burdensome.
“This growth is not only driven by higher interest rates, which gradually translate into higher coupon payments, but also an increase in government spending levels, exacerbating the fiscal burden,” she said.