Governments generally spend more than they raise in tax so they borrow money to fill the gap, usually by selling bonds to investors. As well as eventually paying back the value of the bond, governments pay interest at regular intervals so investors receive a stream of future payments.

The yield on 30-year Gilts — a U.K. government bond — on Tuesday rose to the highest level since 1998. Yields on U.K. government bonds with shorter maturity terms also moved higher. One analyst told CNBC economic concerns were dampening traders' appetite for U.

Britain's government borrowing costs have leapt this week, adding to the challenges facing finance minister Rachel Reeves who is planning to sell hundreds of billions of pounds' worth of bonds this year to fund public services and growth-boosting investments.

Economists have warned the rise could ultimately mean further tax rises or cuts to spending plans.

Rates had been expected to fall in 2025 due to expectations that the Bank of England will cut the base rate three or four times, but that has now been thrown into question.

The pound has fallen to its lowest level in over a year, as UK borrowing costs surge to their highest in 16 years, fueling concerns over public finances and the economy.