Iran war: UK borrowing cost at its highest since 1998 as oil price shoots up

UK long-term borrowing costs have hit their highest level since 1998 while oil prices have notched a new Iran war peak amid fears of extended disruption to energy flows from the Middle East.

The yield - the interest rate demanded by investors to hold 30-year government bonds - stood above 5.7% ahead of Wednesday's close while its 10-year counterpart also hit its highest since July 2008, according to the Reuters news agency..

The UK is not alone in facing bond market pressure as a result of the strains facing economies from rising energy prices but its yields, the highest in the G7 of advanced economies, reflect additional investor concern over the state of the public finances and sticky inflation that has long preceded the Middle East conflict.

The higher the yield, the higher the cost to the UK taxpayer of servicing the government's debt.

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The pace of price increases in the economy is set to pick up in the coming months, adding to the UK's borrowing costs burden and creating pressure for state aid from the chancellor at the same time.

Rising oil prices are widely expected to feed in beyond fuel and heating to include household energy, food and many other goods in the weeks and months to come.

The lack of results in peace efforts between the US and Iran was clear to see on oil markets on Wednesday, following several false dawns earlier this month on White House claims of progress.

A barrel of Brent Crude for June delivery was up by more than 7%, exceeding the $119.50 war time high witnessed on 9 March.

The FTSE 100 ended the day almost 1.2% lower, building on losses across the week that reflected growing worries for the UK and wider global economy.

Neil Wilson, investor strategist at Saxo UK, said of the mood: "Stock markets sold off and oil climbed as President Trump told aides to prepare for prolonged blockade (of the Strait of Hormuz) instead of return to conflict.

"He's apparently met US oil executives today and may be seeking ways to boost domestic production to offset the impact of a longer blockade."

The Strait usually accounts for a fifth of the world's global oil and natural gas shipments.

The consequences of that loss of volumes are taking centre stage for the Western world's biggest central banks.

The Federal Reserve in the US on Wednesday evening - set to be the last policy meeting for chair Jay Powell despite his term being slightly extended - kept its key interest rate at its existing target range of 3.5%-3.75%. Policymakers, however, noted rising concerns around inflation and three shied away from commentary that forecast the Fed's next move was likely to be a cut.

The Bank of England and the European Central Bank are also not expected to raise interest rates in anticipation of the inflation wave to come, preferring to wait for more data. They make their respective decisions on Thursday.

(c) Sky News 2026: Iran war: UK borrowing cost at its highest since 1998 as oil price shoots up