The British government attempted to quell market concerns on Thursday by reaffirming its commitment to fiscal rules, as UK borrowing costs reached levels not seen since the 2008 financial crisis.
Treasury Minister Darren Jones addressed MPs, emphasising that “UK gilt markets continue to function in an orderly way,” despite the 10-year gilt yield climbing to 4.93 per cent and the pound declining by 1 per cent against the dollar to its lowest point in over a year.
The government’s reassurance came as Sir Lindsay Hoyle, Speaker of the House of Commons, granted an urgent question from the Conservative opposition regarding mounting pressure on public finances from rising borrowing costs. Chancellor Rachel Reeves, preparing for a scheduled China visit, delegated the response to Jones, her chief secretary.
Market volatility intensified as the 10-year yield increased by 0.12 percentage points before a partial recovery left it marginally higher at 4.81 per cent. Sterling experienced significant pressure, dropping to $1.224 before stabilising at $1.229.
Sarah Breeden, Bank of England deputy governor, characterised the gilt market movements as “orderly,” attributing them to broader global factors. However, analysts at Brown Brothers Harriman suggested the simultaneous decline in sterling and gilts reflected deteriorating UK fiscal prospects.
The Treasury maintains its commitment to the upcoming multi-year spending review, though fresh forecasts from the Office for Budget Responsibility on March 26 could influence ministerial discussions. The situation raises the possibility of tax increases or spending reductions, with the Treasury indicating a preference for expenditure cuts over tax hikes.
While some market observers draw parallels to the 2022 gilts crisis during Liz Truss’s brief tenure, many investors view the current situation as less severe. Geoffrey Yu, a senior strategist at BNY, suggested markets were approaching a bottom, dismissing direct comparisons to the 2022 crisis.
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