UK borrowing costs hit 18-year high as pound falls amid Labour leadership turmoil

UK government borrowing costs rose to a new 18-year high on Friday as the pound weakened, with markets reacting to the latest twist in the Labour leadership battle involving Andy Burnham.

The 10-year gilt yield rose above 5.14% at one point, its highest level since 2008.

The pound fell 0.3% against the dollar to around $1.337, and was 1.5% lower over the week.

Long-term borrowing costs also moved higher, with the yield on 30-year gilts reaching a peak of 5.82%.

Analysts said UK moves were larger than those seen in other European government bond markets.

The market reaction matters because higher gilt yields can raise the cost of government borrowing and signal investor concern about future fiscal policy.

Traders were said to be weighing the possibility that a Burnham-led government could increase public borrowing.

The latest move followed Burnham's decision to fight a by-election, which added to uncertainty around the Labour leadership contest.

One analyst said the process looked likely to be more protracted and noisy, prolonging the political uncertainty.

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