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The yield on ten-year debt rose 0.2 percentage points to 4.37% on Thursday, above Italy’s 4.35%.

In the year It is the first time since the 2007 financial crisis that British manufacturing has topped the G7 group of advanced economies. Despite last year’s mini-budget turmoil, Italy’s borrowing costs were still higher than Britain’s.

The increase is a major test of the credibility of Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey, who have sought to present themselves as capable economic managers after the chaos of Ms Truss’s short premiership.

Inflation rose 8.7 percent last month, beating the bank’s forecast of an 8.4 percent rise, after markets were hit by unexpectedly strong inflation. Britain’s inflation is comfortably the highest in the G7 and concerns are growing that it is being driven by wage growth rather than external shocks, making it harder to control.

Traders now expect interest rates to be 5.5pc by the end of the year, up from 4.5pc currently.

The price in the swap market, which is used to sell mortgages, has risen, forcing lenders to respond.

Lloyds, Virgin Money and Halifax announced small loan rate hikes on Thursday, with several big lenders expected to follow suit in the coming days.

Gary Greenwood, banking analyst at Shore Capital, said: “Other banks will have to follow suit if exchange rates continue at their new levels, which will increase the cost of paying off mortgages for homeowners and erode household finances.”

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