IMF warns rising bond yields could tighten UK fiscal plans and strain emerging markets

Kristalina Georgieva, managing director of the International Monetary Fund, told G20 finance leaders that borrowing costs are climbing faster than many expected. The 10‑year UK gilt rose to about 5.27%, a level not seen since the 2008 crisis, after a 15‑basis‑point jump the day before. At the same time, India’s 10‑year bond topped 7% and Australia’s hit a 15‑year high above 5.2%.

Why the surge matters

Higher yields mean governments must allocate more of their budgets to interest payments, leaving less for public services or investment. In the United Kingdom, the timing is especially delicate because Chancellor John Healey is set to deliver his first budget at the end of October.

"The increase in global interest rates is of particular concern," said Georgieva at the meeting.

She added that while debt conditions have improved for many emerging and low‑income economies, the recent spike in advanced‑economy yields could reverse that trend unless policymakers act prudently.

UK faces a fiscal squeeze

Energy markets have added pressure after oil and gas supplies were disrupted by the conflict in Iran. Brent crude climbed above $95 a barrel, its highest level in nearly six weeks, pushing inflation higher and prompting concerns that the Bank of England may need to raise rates.

Analyst Chris Beauchamp of IG warned that the bond sell‑off could shave billions off the fiscal headroom left by former Chancellor Rachel Reeves. "Governments around the world are feeling the pressure from bond markets, but the situation is particularly acute for the UK," he said, noting that the cost of ambitious reforms could fall on taxpayers.

Andy Burnham’s proposed "triple helix" growth plan, which puts the state at the centre of the economy, will now have to contend with higher borrowing costs. For details on that plan see Burnham pitches ‘triple helix’ growth plan.

What comes next

Markets expect the UK government to tighten its fiscal projections and possibly delay or scale back spending programmes. The Bank of England may also feel compelled to raise rates if inflation remains sticky, further increasing debt service costs.

Emerging economies that have benefited from lower borrowing costs could see their financing conditions tighten, prompting a review of debt‑management strategies. The IMF’s warning underscores the need for policy discipline and stronger fiscal buffers across the board.

For a deeper look at how the recent gilt surge is affecting the UK’s debt burden, read UK gilt yields hit 18‑year high, adding £6bn to debt cost.