A global sell-off in government bonds has put fresh upward pressure on UK borrowing costs, before a tough budget for John Healey next month.

The yield – effectively the interest rate – on 10-year UK bonds, known as gilts, had risen to 5.38% by mid-morning on Thursday, approaching the 19-year high set last week.

Higher interest rates raise the upfront cost of government investment and feed through into Office for Budget Responsibility forecasts of whether the chancellor is on course to meet Labour's fiscal rules.

Analysts believe recent increases in yields have wiped out more than half of the £24bn "headroom" against the rules that the former chancellor Rachel Reeves had built up at the time of the spring statement in March.

Healey, her successor, has repeatedly promised to meet the rules with a "buffer against uncertainty" but this is widely expected to be significantly lower than £24bn.

Rebuilding it to that level would be likely to require large tax increases or spending cuts; but Treasury sources insist the budget will be "focused", with important spending decisions postponed to a review next year.

Investors across the main markets have been ditching bonds in recent weeks in a wave of selling prompted by fears of higher inflation and interest rates as the conflict in the Middle East rumbles on.

The Bank of England chief economist, Clare Lombardelli, said in a speech on Thursday that the longer oil prices remained elevated as a result of the war, the more likely it was that UK interest rates would have to rise.

"The longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response," she told an economic conference in Warsaw, Poland.

"On that basis, policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity."

Higher rates would mean increased mortgage costs for homeowners, at a time when Andy Burnham's government has promised to offer consumers a "breathing space" against the rising cost of living.

The Bank is also expecting an eye-watering 24% rise in the quarterly energy price cap that determines household utility bills in January, if oil prices remain high.

Lombardelli's message echoed that of the Bank governor, Andrew Bailey, after the nine-member monetary policy committee left interest rates on hold at 3.75% last week.

She stressed that high oil prices had had less impact on other prices across the economy than the Bank had feared; but the longer they remained high, the greater the risk of inflation becoming entrenched.

As the bond sell-off continued to worsen on Thursday, yields on 30-year US Treasury bonds surged to 5.444% – the highest level since 2004.

Alongside higher inflation, investors appear to be concerned about the risks of uncontrolled US government spending. Some analysts also suggest large-scale bond issuance by AI firms is undermining demand for treasuries.