The pound fell sharply yes­ter­day as long-term bor­row­ing costs in the UK reached their highest level since 1998, with con­cerns over the coun­try’s pub­lic fin­ances com­bin­ing with a global move higher in bond yields.

Ster­ling slumped as much as 1.5 per cent against the dol­lar to $1.334 before edging up to $1.338, put­ting it on track for its biggest one-day drop since April, a day after Sir Keir Starmer reshuffled his eco­nomic team.

Adding to pres­sure on chan­cel­lor Rachel Reeves ahead of her Budget, the yield on the 30-year gilt rose 0.08 per­cent­age points to 5.72 per cent at one point. Bond yields rise as prices fall. UK bor­row­ing costs are the highest in the G7, driven up in recent years by per­sist­ent infla­tion and rising pub­lic debt.

The higher yields — if sus­tained — will fur­ther erode the chan­cel­lor’s head­room against her key fiscal rule.

Lord Ken Clarke, a former Con­ser­vat­ive chan­cel­lor, claimed that Bri­tain was “much nearer to the risk of a fin­an­cial crisis than the gov­ern­ment is remotely acknow­ledging” and claimed it was not impossible it would have to seek a bail­out from the IMF.