British government bonds faced intense selling pressure on Thursday, driving borrowing costs to their peak levels for 2024, as investors grappled with the implications of Rachel Reeves’ expansionary Budget plans. The 10-year gilt yield climbed by 0.09 percentage points to reach 4.44 per cent, briefly surpassing 4.50 per cent during trading.
The pound sterling witnessed a notable decline, dropping 0.8 per cent against the US dollar to $1.286, marking its lowest position in over two months. The market reaction followed the Labour chancellor’s announcement of a £28 billion annual increase in borrowing, which the Office for Budget Responsibility described as “one of the largest fiscal loosenings of any fiscal event in recent decades”.
Market analysts have expressed growing concerns about the optimistic nature of the Budget’s assumptions. Ben Nicholl, senior fund manager at Royal London Asset Management, highlighted investors’ fears that Labour might need to return to the bond market in April to secure additional borrowing and implement further tax increases.
The Debt Management Office revealed that debt sales could reach £300 billion in the current fiscal year, exceeding previous estimates of £278 billion and surpassing market expectations. These figures have pushed UK 10-year borrowing costs dangerously close to the 4.63 per cent peak witnessed during the aftermath of Liz Truss’s controversial “mini” Budget in September 2022.
Despite market turbulence, Barclays chief executive CS Venkatakrishnan offered a measured perspective, praising the government’s efforts to balance spending, borrowing, and taxation to promote growth. However, JPMorgan’s Allan Monks suggested that Labour’s decision to “tax, borrow and spend on a large scale” would likely boost short-term growth and inflation, potentially affecting the trajectory of interest rate cuts.
The impact extended to British equities, with the FTSE 100 declining 0.6 per cent and the more domestically focused FTSE 250 falling 1.5 per cent. These movements reflected growing investor concern about the pace of future interest rate reductions, with markets now anticipating three quarter-point rate cuts over the next twelve months, down from previous expectations of four to five cuts.
Post Disclaimer
The following content has been published by Stockmark.IT. All information utilised in the creation of this communication has been gathered from publicly available sources that we consider reliable. Nevertheless, we cannot guarantee the accuracy or completeness of this communication.
This communication is intended solely for informational purposes and should not be construed as an offer, recommendation, solicitation, inducement, or invitation by or on behalf of the Company or any affiliates to engage in any investment activities. The opinions and views expressed by the authors are their own and do not necessarily reflect those of the Company, its affiliates, or any other third party.
The services and products mentioned in this communication may not be suitable for all recipients, by continuing to read this website and its content you agree to the terms of this disclaimer.