Since 1998, the UK's long-term borrowing costs have reached their highest level.

• On Tuesday, the yield on 30-year Gilts in the UK reached its highest point since 1998.
• Yields on U.K. government bonds with shorter maturity terms also moved higher.

On Tuesday, the cost of borrowing in the U.K. increased, as the yield on 30-year Treasury gilts reached its highest level in nearly three decades following an auction.

The 30-year Gilt yield in the UK increased by 3 basis points to 5.212% by 2:02 p.m., reaching its highest level since the late 1990s.

The yield on 20-year gilts increased by 3 basis points, resulting in a trade price of 5.153%.

Yields on gilts with shorter maturity terms also moved higher on Tuesday.

In the U.K., the 10-year gilt yields increased by 3 basis points to reach 4.641%, while the yields on the 2 and 5-year gilts were slightly higher in the early afternoon.

'Stagflation' concerns

On Tuesday, Susannah Streeter, the head of money and markets at Hargreaves Lansdown, stated that the British bond market was impacted by uncertainty both at home and abroad.

Traders expressed concern to CNBC via email that U.S. President-elect Donald Trump's tariff plan could lead to inflation in America and beyond if the dollar is strengthened or U.S. interest rates and consumer prices increase.

The British economy unexpectedly contracted by 0.1% in October, and inflation hovered above the Bank of England's 2% target, edging higher to 2.6% in November.

The British Chambers of Commerce reported that business confidence had reached its lowest point since the U.K.'s 2022 "mini-budget" crisis, with many firms expressing concerns about covering additional tax costs on top of increasing wages.

"The U.K. is facing a growing concern about stagflation, as inflation continues to rise and pay growth remains strong, despite a stagnant economy. This uncertainty has led to a decline in demand for long-term U.K. government debt, according to Streeter, who spoke to CNBC on Tuesday."

In recent weeks, gilt yields have increased significantly, causing concern among the government and its clients about the health of public finances, as stated by Richard Carter, head of fixed interest at Quilter Cheviot, in a note to clients on Tuesday.

"Despite the uncertainty in the market, the Bank of England is cautious about reducing interest rates too quickly, as evidenced by the lack of demand from investors during the latest gilt sale."

Despite the fact that gilt yields are above expected inflation levels, he stated that it is still an attractive opportunity for long-term investors.

He stated that short-dated gilts are a promising avenue for investors with a lower risk appetite, as they are less sensitive to market fluctuations.