LONDON, Oct 24 Reuters Yields on British government bonds climbed on Thursday after a newspaper said finance minister Rachel Reeves was set to give herself a lot more room for borrowing in next week39;s budget, which could slow the Bank of England39;s interest rate cuts.

Gilt yields rose by about 6 basis points in early trade while those of German and U.S. government bonds fell. At 0800 GMT, the yield on two and 10year gilts , were up by about four basis points and those on 30year gilts were up by about three.

That pushed the premium investors demand to hold British 10year debt over German to as high as 198 basis points on Thursday, just below a 14month high of 201 bps touched earlier this month .

It seems to be related to Reeves last night suggesting that the fiscal rules would be rewritten to increase spending on infrastructure, Lyn GrahamTaylor, a senior rates strategist at Rabobank, said.

The Guardian said on Wednesday that Reeves would change how the government assesses the public finances that could free up room for tens of billions of pounds of extra capital spending.

The report cited a senior government source as saying that Reeves would target a measure known as public sector net financial liabilities PSNFL, replacing the current target of public sector net debt excluding the BoE.

The Institute for Fiscal Studies, a think tank, estimates that if the PSNFL metric had been used in the last budget in March it would have given the then Conservative government…