Earlier this week, it was reported that UK long-term borrowing costs had reached their highest level since 1998, with 30-year bond yields climbing by 0.115% in a day. They have since fallen marginally, but remain above 5.6%. It is important to put this into context, as bond yields have been climbing for some time and this rise meant that these yields were only 0.009% higher than they were this time last week. This is clearly a problem in its own right, but what has caused deeper alarm is the fact that UK debt appeared to be an outlier compared to the rest of Europe. For many countries on the continent, borrowing costs seemed to be falling, particularly in comparator nations such as Germany and France.

The obvious question to ask is: why is the UK being singled out? France, for example, has a higher debt to GDP ratio and a higher spending government than Britain, while also having slower growth last year. So why provide France with cheaper debt? In its normal self-obsessed way, Westminster took the rise in costs to be about the questions over Keir Starmer’s leadership of Labour and whether Rachel Reeves could be replaced as chancellor. There may be some element of that in the debt movements, but France is hardly a picture of political stability, with a hung National Assembly, four prime ministers in the past two years and Macron’s presidential term due to end next year with the Rassemblement National leading in the polls.

Instead, the real reason that debt costs are rising for the UK is inflation. Yields go up when markets think that inflation is going to erode the value of assets. To take our French neighbours as an example once again, in 2025 inflation in the UK was 3.4% compared to 1.2% in France. The International Monetary Fund predicts that inflation in the UK this year will be nearly double the level of France. The ongoing Iran war has pushed the Bank of England to warn that inflation could go as high as 6% in the UK this year, while the European Central Bank thinks that it can keep inflation below 3%.

Inflation is lower in Europe for several reasons. Unlike Britain, the eurozone is running a current account surplus with the rest of the world. This means that there is more demand for euros, strengthening the currency compared to other countries and therefore reducing import costs. Amid an import price shock caused by a spike in global oil prices, this is a very strong position to be in. The UK, by contrast, is running one of the largest current account deficits in the developed world and unlike the US, which is in a similar position, the pound is not the global reserve currency. This is why the UK’s currency has been on a 20-year fall in value, raising import costs and ultimately driving up domestic inflation.

What’s more, in core essentials such as food, many European countries are net exporters, rather than importers like Britain. This means that food inflation is running lower, with the rate in the eurozone running at 2.5% in April, compared to nearly 4% in the UK. European countries are also investing significant sums of money into developing domestic energy production and energy efficiency, with over €150 billion spent on EU energy investments alone over the past four years.

Markets have little confidence that Britain is going to get to grips with inflation because the fundamental weaknesses seem unfixable. No one in Westminster is putting serious thought into increasing the supply of essentials such as food. Nor is anyone discussing the replacement of Britain’s lost refining capacity and chemicals industry. Instead, there are endless announcements to reduce the “cost of living”, essentially subsidising bills rather than increasing supply, which is not a real solution to persistent inflation. There is one thing of which we can be certain: the more focus there is on the “cost of living”, the more borrowing will increase.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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