Britain’s benchmark 10-year government borrowing cost reached its highest level since July 2007 on Thursday 8 October, as Chancellor John Healey prepares to deliver Labour’s Budget on 28 October.
Reuters reported that the 10-year gilt yield touched 5.527%. Yields on 20-year and 30-year gilts reached 6.00% and 6.05% respectively, their highest levels since early 1998.
Global market pressures
The increases formed part of an international bond sell-off. Reuters linked the move to rising oil prices, attacks on shipping in the Gulf and concerns about disruption to US oil production from a hurricane.
The figures describe levels reached during trading on 8 October, rather than guaranteed closing prices or current rates. They do not establish that Labour’s policies alone caused the increase.
Pressure ahead of the Budget
The Treasury has confirmed that Healey’s first Budget as Chancellor will take place on Wednesday 28 October. Its announcement said the statement would be built on fiscal discipline and meet the Government’s fiscal rules.
Higher market yields can increase the cost of issuing new government debt and refinancing borrowing as existing bonds mature. That can make decisions over taxation and public spending more difficult. The movement does not immediately reset the interest payable on every outstanding government bond.
Bailey calls for credible public finances
Speaking at a conference in Istanbul on Thursday, Bank of England Governor Andrew Bailey said governments needed credible, stable fiscal policies to maintain investors’ confidence.
Reuters reported that he argued realistic commitments to manage debt could help limit the additional returns investors demand during economic shocks. His remarks addressed pressures across global bond markets and should not be presented as a finding that the forthcoming UK Budget has failed.
The final Budget measures have yet to be announced. The market movements alone do not establish which taxes will change or which spending decisions ministers will take.