UK Borrowing Costs Surge as Starmer Shakes Up Economic Team

Britain’s borrowing costs have soared to their highest level since 1998 following Prime Minister Sir Keir Starmer’s bold reshuffling of his economic advisers. The yield on 30 year UK gilts climbed to 5.64 percent on Monday, outpacing all other G7 nations and signalling mounting market anxiety about the country’s fiscal outlook.

The latest surge arrives after Starmer promoted Darren Jones from his role as deputy to Chancellor Rachel Reeves, appointing him as Chief Secretary to the Treasury. Baroness Shafik, a former deputy governor of the Bank of England and proponent of increased wealth taxation, has been brought in as chief economic adviser. James Murray has stepped in to replace Jones as Treasury minister.

This new line up faces a daunting challenge. A looming Budget is expected to address a hole of up to £50 billion in the public finances, sparking speculation about significant tax rises led by Chancellor Reeves. Analysts suggest investors are unnerved by the lack of detail in the government’s approach to the deficit and the clear possibility of further debt issuance. Simon French, chief UK economist at Panmure Liberum, commented that the rapid market reaction demonstrates scepticism in the Starmer team’s ability to restore fiscal control.

Global factors have also been at play, with tumult in US and French politics contributing to a broad rise in bond yields. Yet experts warn that the UK remains more exposed because of its frail public finances and persistent inflation. James Bilson, a bond strategist at Schroders, warned that only a credible fiscal plan and improved inflation outlook will alleviate upward pressure on UK debt costs, which currently show no signs of materialising.

Labour’s shake up has placed advocates of increasing wealth taxes at the heart of government. The newly appointed Exchequer secretary, Dan Tomlinson, has a background at the Resolution Foundation and co authored influential reports calling for greater taxation of wealth, arguing that it is under taxed compared to earned income.

With bond traders demanding ever higher premiums to buy UK debt, the mounting cost of borrowing will intensify the pressure on Reeves and her team as they shape Budget plans. The opposition sharply criticised the changes, drawing stark comparisons to “rearranging the deck chairs on the Titanic,” and warning that tax rises and inflation will weigh further on public and economic confidence.

As the new economic team settles in, all eyes will be on how they propose to steady both Britain’s finances and investor nerves before the crucial Budget announcement.