london - Just six months after taking office, Britain's new government, already facing anger over high taxes, unpopular spending decisions and political scandals, has been hit by rising borrowing costs that threaten to derail its left-leaning plans.

UK 10-year government bond yields have risen by more than 1.1 percentage points since September 16, reflecting investors' price demand for debt financing in the country amid concerns about sluggish economic growth and stubbornly high inflation. This has pushed Britain's borrowing costs to their highest levels since the 2008 financial crisis.

As borrowing costs rise, the government has less money to spend on the national health service, the military, emergency services and schools. Although officials were given a brief respite when inflation edged lower in December, if the situation does not improve quickly, Prime Minister Keir Starmer may have to reconsider increasing spending and avoiding "working people" Promises of tax increases that helped Labor. won a landslide victory in the July elections.

The problems are partly due to the return of U.S. President-elect Donald Trump, who has pledged to raise taxes on imported goods, sending a shiver through the world economy and pushing up global bond yields. But the problem is partly of the government's own making, with Finance Minister Rachel Reeves setting out her economic plan on the assumption that economic growth will increase tax revenue.

Here's a closer look at the UK economy and its likely impact.

Bond investors around the world are alarmed by Trump's plan to impose high tariffs on imported goods, which will drive up U.S. consumer prices and prompt the Federal Reserve to keep interest rates higher for longer, Suzanne Street ( Susannah Streeter said. British investment company Hargreaves Lansdown. Higher prices tend to lead to higher borrowing costs, as bondholders seek to ensure that their investments will not be eroded by inflation.

Just a few months ago, investors were betting that the Fed would approve multiple rate cuts this year. Now they only expect one.

“The rise in gilt yields since early autumn appears to be primarily the result of global factors rather than any decisions taken by the UK government in recent weeks and months, and appears to largely reflect market sentiment towards a rate hike by the Bank of England. expected. The Institute for Fiscal Studies, a think tank focusing on British government policy, said last week.

Gilts are bonds issued by the British government and traded on the London Stock Exchange.

No, borrowing costs are rising in many countries, including the U.S.

But the UK is particularly at risk because of its economic conditions and high government debt.

Consumer price inflation fell to 2.5% in the 12 months to December from 2.6% the previous month. This is still some distance from the Bank of England's 2% target.

The British economy has been essentially flat in recent months. The latest government statistics show gross domestic product stalled in the three months to September after growing 0.7% in the first quarter and 0.4% in the second.

This is partly due to the government's decision to raise payroll taxes paid by employers and tighten workplace regulations, leading some companies to cut investment and hiring.

"The UK is also in the eye of the storm right now," Street said, adding that "concerns about stagflation are spreading."

"Inflation has drifted away from the Bank of England's target amid fears of economic stagnation. This has also made investors nervous about holding UK government debt," she said.

UK government debt accounted for more than 98% of economic output in November. This is the highest level since 1963, when Britain was still repaying World War II debt.

Reeves is counting on economic growth to help reduce debt as a share of gross domestic product. She also introduced new fiscal rules that would ban the government from borrowing to fund daily spending by 2030, while promising not to raise taxes on "working people."

Higher borrowing costs will make it more difficult to achieve these goals. Even so, it would be difficult for Reeves to abandon her commitment, said Paul Johnson, the institute's president.

"She's really nailed her position there and we're seeing markets that are very worried about the UK's position," Johnson told the BBC over the weekend. "Part of the reason is that we rely so heavily on international financial flows to finance our debt and even our trade deficits with countries like China."

All of this means the new Labor government must take risks, such as engaging with China to promote trade and commercial ties despite critics raising national security concerns.

Reeves recently made a three-day trip to China to seek investment rather than stay at home and try to calm markets. While some have derided the visit, Reeves insists China offers the UK an opportunity to drive growth that cannot be ignored.

“The choice not to engage with China is therefore not a choice at all,” she wrote in The Times of London.

If borrowing costs remain high, Reeves may have no choice, reducing the amount she has to spend.

The policy shift could happen as early as March 26, when Reeves will give parliament an update on the state of the nation's finances and the Office for Budget Responsibility will update its economic and fiscal forecasts.

"Ultimately, investors shouldn't panic," Street said. "Financial markets can be subject to volatility, but over the long term things tend to balance out."