UK borrowing costs have surged as concerns mount over the Labour government’s upcoming Budget. The gap between UK 10-year gilt yields and their German counterparts has widened to 1.94 percentage points, its highest since August 2023, reflecting fears of increased UK debt and persistent inflation. Chancellor Rachel Reeves faces a challenge balancing spending plans without triggering a gilt sell-off, reminiscent of the market reaction to the 2022 “mini” Budget. Investors worry Reeves’ potential borrowing rule changes may drive further gilt issuance. The Bank of England’s cautious rate policy adds pressure, contrasting with anticipated rate cuts by the European Central Bank.