Fears that the Government will struggle to raise the billions of pounds it needs from capital markets to pay for its record fiscal deficit rose today after the Treasury suffered its first failed bond auction in more than a decade.

The UK Debt Management Office got just £1.67 billion for its sale of £1.75 billion of gilts dated 2049, the first time it has fallen short since 1995.

The offer was covered just 0.93 times — thought to be the lowest subscription for British Government debt ever. The average cover of the last three auctions was 2.1 times.

Analysts said this reflects growing concerns about the state of the UK's finances, and suggests it may cost the Treasury far more than it is forecasting to fund the deficit. The news raises the pressure on already under-fire Chancellor Alistair Darling.

Gilt prices tumbled, with the June gilt future losing 1.9 points. The Government plans to sell an unprecedented £146.4 billion of debt this fiscal year.

Sarah Ellis, a spokeswoman for the DMO in London, said: “The risk of uncovered auctions is a normal part of the process. Today's auction was at the riskiest part of the curve.”

Gilt strategists blamed the auction's failure on market uncertainty created by Bank of England Governor Mervyn King. The Bank has already bought about £10 billion in gilts as part of its scheme of quantitative easing, but King said it could scale back its programme of gilt purchases if they were especially successful in boosting the economy.

“I just think there's a state of confusion in the market at the moment. It requires greater clarity from the Bank on what its aims are in this process,” said Sean Maloney of Nomura International. The Bank had no comment.

Shadow chancellor George Osborne said the dismal demand for bonds raised concern that the Treasury would struggle to fund the ballooning state debt. In turn, interest rates could have to rise in order to increase interest in future gilt offerings. “That could push up interest rates for families and businesses at the worst possible time,” he warned.

The auction result came as one of Britain's biggest employers, engineering group Smiths said that between 31 July last year and 31 January, its pension funds' deficit ballooned from £11 million to £464 million — and is getting worse due to the Bank's quantitative easing policy.