Treasury: We have an iron grip on the public finances
A late development – the UK government has insisted, firmly, that it will stick to the chancellor’s fiscal rules, following the further rise in bond yields today that have eaten into what headroom there was.
A HM Treasury spokesperson says:
“No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.
“UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has - anything else is pure speculation.
“Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change. Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”
Closing post
Time to recap….
The UK government is under more pressures to consider spending cuts or fresh tax rises after Britain’s 10-year borrowing costs rose to the highest level since the global financial crisis.
In a sign that the bond sell-off was escalating today, the yield on 10-year UK gilts rose to 4.825%, the highest level since the financial crisis more than 16 years ago.
The yield on 30-year gilts, which hit a 26-year high on Tuesday, continued to rise too.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said concerns about stagflation were brewing, given inflation is creeping up, pay growth is rising, and the economy is stagnating.
“There are concerns this may limit the interest rate reductions this year. It’s unclear to what extent the UK government’s investment in infrastructure will provide a boost to growth over the longer term. It seems appetite to buy long-term dated UK government debt has fallen amid this uncertainty.”
Economists warned that Rachel Reeves’s headroom to keep to her fiscal rules is being wiped out by the rise in borrrowing costs.
Although concerns over the strength of the UK economy are one factor hitting bonds, analysts said that the sell-off was also a global phenomenon, with fears over Donald Trump’s plans for import tariffs also moving markets.
Reports that Donald Trump is mulling over the idea to declare a national economic emergency to impose widespread tariffs added to those worries.
The pound weakened to its lowest level since last April, losing more than a cent to trade around $1.235.
The number of Americans filing new claims for unemployment benefit fell, while fewer new workers than expected were added to company payrolls last week.
