Long-term government borrowing costs have risen to a 28-year high, putting further pressure on Prime Minister Andy Burnham ahead of his first Budget next month.

The yield on a 30-year gilt — a loan to the British government — rose to 5.89% on Tuesday, the highest since 1998.

Borrowing costs in the US, Japan and Europe have hit similar highs in recent days, reflecting investors’ concerns about inflation, state borrowing levels and spending levels by large tech companies on AI.

Burnham told the House of Commons his government’s “bedrock”, as it seeks to tackle the cost-of-living crisis, will be “fiscal responsibility”.

All of those factors will make the Budget process trickier for Burnham, who on Tuesday addressed MPs for the first time as prime minister, and his Chancellor John Healey.

Burnham told the House of Commons the economy and the cost of living were “the biggest issues facing the country”.

Higher borrowing costs will reduce the amount of headroom the government has against its self-imposed fiscal rules, limiting the amount Healey can spend on consumer-friendly measures to ease the cost of living.

Despite the squeezed public finances, Burnham said said he would bring about “more substantial change” to ease living costs.

“Britain is not where any of us would wish it to be,” he added.

Conservative leader Kemi Badenoch accused Burnham of “living in the past”.

“His diagnosis is completely wrong,” she told the House of Commons. “His theory of growth is completely wrong. He thinks that if Government spends more money, we will all get richer.

“That is not how this works.”

The chancellor has previously said he will stick to a set of fiscal rules imposed by his predecessor Rachel Reeves that restrict borrowing. These rules are designed to help markets have clarity about the path of borrowing.

The more that is forecast to be spent on interest payments, the more likely that there will be a squeeze on spending or some form of tax rise to meet these rules.

On top of that, higher government rates can feed through to higher business and household borrowing costs, and so weigh on the economy.

Burnham was already facing a tough balancing act with taxing and spending, due to pressures on defence and the cost of living.

As well as the rise to 30-year gilt yields, the yield on the benchmark 10-year gilt rose to 5.22% on Tuesday. This is its highest rate since June 2008, at the height of the global financial crisis.

Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise.

Around the world there are warning lights flashing from the markets for government debt.

Global markets reacted in particular after suggestions in the US that its central bank could raise rates. Japan is also facing pressure to raise rates.

The Chancellor is in the USA attending a meeting of global finance ministers and central bankers. He told the G20 that the UK had the fastest growth in the G7 in 2026 so far, that productivity was improving and that the UK was cutting its borrowing at the fastest rate of the major economies.

US borrowing costs hit a fresh high on Tuesday as renewed strikes in the Middle East pushed up oil prices and heightened concerns over inflation.

Karen Ward, JP Morgan’s chief market strategist for Europe, said governments around the world want to increase spending and are turning to borrowing to fund it.

And she told the BBC’s World at One they are increasingly having to compete with major technology companies raising money to invest in the AI revolution, pushing up the amount of interest being charged.

“Markets are getting a lot more choice about who they are going to lend to and at what interest rates,” she added.

Burnham has rolled out a series of interventions to support consumers and businesses since entering Downing Street, and is expected to prioritise further measures to ease the cost of living in the Budget on 28 October.

Ward urged Burnham and Healey to set out how they will fund any fresh spending on defence and the cost of living, and how those lending the government money will be paid back.

Kathleen Brooks, research director at investment company XTB, told the BBC News Channel: “Of course, this is red lights flashing.”

“We are used to pockets of volatility, it has been volatile few months,” she says.

But record levels of government debt and a record tax take mean “these are not comfortable times for the new government and the new chancellor,” she says.

Every time bond yields rise, the UK has to pay more on the debt interest, she says.