UK's Reeves says it is 'very important' to reduce government borrowing costs

By Harry Robertson and David Milliken

LONDON, June 16 (Reuters) - British finance minister Rachel Reeves said on Tuesday that it was "very important" for the country to lower its borrowing costs, which on some measures are running at their highest in close to 30 years.

Speaking at a conference for bond investors hosted by the Financial Times, Reeves said Britain paid more to borrow than similar countries, due to a sharp rise in debt during the COVID-19 pandemic under the previous Conservative government as well as shocks from the Iran war.

"It is very important that we start to bring down borrowing costs," Reeves said.

Last week Britain sold £9 billion ($12.1 billion) of 15-year bonds with a yield of 5.3454% - he highest for any 15-year bond sold since the UK Debt Management Office was created in 1998.

By comparison, German 15-year bonds yield 3.28% and the United States pays a yield of around 4.83%.

"We do pay more for government borrowing in the UK than ... comparable countries around the world," Reeves said.

"Things have moved against us this year. Britain is perceived, at least, as being more exposed to an energy price shock," she added.

Britain would face economic pressures from the Iran war over the coming months, but Reeves said she very much hoped that further tax rises would not be needed by the time of the next annual budget due towards the end of the year.

It was increasingly obvious that extra defence spending likely to be recommended by an upcoming review would need to be funded by scaling back previously agreed budget increases for other departments, she added.

Reeves said the government was taking steps to reduce the exposure of its economy to imported natural gas and that unlike the United States or France, it was making a substantial reduction to its budget deficit.

Political uncertainty has also added to the upward pressure on gilt yields. 

Reeves said Greater Manchester mayor Andy Burnham - who is widely expected to challenge Prime Minister Keir Starmer for the leadership if he wins election to parliament on Thursday - was "really clear" that he would stick to the existing fiscal rules.

($1 = 0.7452 pounds)

(Reporting by Harry Robertson; additional reporting by Sarah Young and Sam Tabahriti; writing by David Milliken; editing by Alexandra Hudson)