The Chancellor of the Exchequer, Rachel Reeves, made an unprecedented second public statement in as many days, asserting her “iron grip” on public finances amidst an intensifying bond market sell-off. The cost of government borrowing has escalated to levels not witnessed since the 2008 global financial crisis, potentially threatening the Chancellor’s fiscal objectives.
The Treasury’s spokesperson emphasised the non-negotiable nature of meeting fiscal rules, highlighting Reeves’ commitment to maintaining strict control over public finances. The statement underscored her determination to drive economic growth whilst supporting working people, though market analysts express growing concern over the government’s financial trajectory.
The yield on 10-year government bonds reached a striking 4.825%, marking the highest level since 2008. This significant increase from 4.679% the previous day, and 4.2% at December’s outset, reflects mounting market anxiety over the government’s tax and spending strategies. The pound sterling experienced a notable decline, dropping to $1.232 against the US dollar, its lowest point since April 2024.
Market experts, including Kathleen Brooks from XTB, suggest the UK has become an outlier, attracting unwanted attention from bond vigilantes. The situation mirrors, albeit on a smaller scale, the bond market turbulence witnessed during Liz Truss’s brief tenure as Prime Minister in 2022.
The Office for Budget Responsibility’s forthcoming economic forecast, due for parliamentary presentation on 26 March, will be crucial. With the Treasury ruling out additional tax increases this spring, Reeves may need to consider spending reductions to demonstrate compliance with fiscal rules. The Institute for Fiscal Studies indicates that recent bond market movements have potentially eliminated the Chancellor’s modest fiscal headroom, setting the stage for challenging cabinet discussions regarding future spending allocations.
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