Bank's Bailey talks down repercussions of leap in long term borrowing costs

The cost of long term UK government borrowing has hit a fresh 27-year high but the governor of the Bank of England has talked down its importance as chancellor Rachel Reeves battles challenges to the public finances..

The interest rate demanded by investors on the state's long-dated borrowing (30-year bonds) rose to just below 5.75%, surpassing the 5.72% peak reached on Tuesday, pushing it to a high not seen since May 1998. The latest movements took place a day after the government auctioned off a record series of 10-year loans - and was forced to pay a premium to do so.

Issuing bonds is a routine way states raise money. Money blog: Sainsbury's criticised for trialling 'spying' technology As well as meaning the state has to pay more to borrow money, high interest rates on debt can signify reduced investor confidence in the ability of the UK to pay back these loans.

It is a reason why the chancellor's budget - set today for late November - has come into such sharp focus in recent weeks. But the Bank's governor, Andrew Bailey, told a committee of MPs: "It's important not to...

over focus on the 30-year bond rate. "Of course, it's a number that gets quoted a lot, it's quite a high number, it is actually not a number that is beingused for funding at all at the moment".

The 30-year yield stood at 5.62% soon after his remarks. The benchmark for state borrowing costs, the interest rate on 10-year bonds, also saw rises earlier.

The yield rose above 4.8% for the first time since January, before slightly falling back The spiked borrowing cost also continued to cause a weakening in the pound. After an initial fall to a month-long low against the dollar, one pound again buys $1.34.

It means sterling goes less far in dollars than before the latest peak in interest rates on government bonds. On Monday, sterling could buy $1.35.

Sterling dropped to equal €1.14 before easing up to €1.15. Just a few months earlier, a pound could buy €1.19 before Donald Trump's April country-specific tariff announcements.

So why has this happened? Government borrowing costs have been rising across the world amid a sell-off in bonds - which prompts investors to look for a higher return to hold them. High inflation and national debts have increased concern about whether states can pay back the money.

Read more:Prospective Thames Water rescuers make big promiseHundreds of jobs at risk as retailer Bodycare braces for administration Japan's long-term borrowing cost hit a record high, while the yield on the US's benchmark 10-year bond hit the 5% mark for the first time since July. UK bond yields tend to follow the US.

Key to easing UK borrowing costs was the announcement of the date of the budget on Wednesday morning. UK public finances had been a worry for markets as Chancellor Rachel Reeves struggles to stick to her fiscal rules to bring down the debt and balance the budget.

Disquiet around comparatively low growth in the UK economy also played a role..