The UK government bond yields have seen a sharp increase since Labour's budget plan in October, reaching multi-decade highs and raising concerns about rising borrowing costs. Economists warn of a 'vicious circle' where increased yields strain public finances, leading to tighter fiscal policy, further impacting the economy. A concurrent decline in sterling adds to the anxieties. External factors, such as Donald Trump's return to the White House and higher interest rate expectations, are also weighing on the UK.
The march higher in U.K. government bond yields since the Labour government presented its debut budget plan in October has sparked concern, as borrowing costs rose to breached numerous decade highs.
"The rise in gilt yields has a self-reinforcing feedback loop through the U.K.'s debt sustainability, by increasing borrowing costs used for budgeting purposes," ING Senior European Rates Strategist Michiel Tukker said in a Friday note. The Institute for Fiscal Studies think tank said Friday there is a"knife edge," chance of the U.K. achieving the latter fiscal rule, but that Finance Minister Rachel Reeves could"get lucky."to free up more headroom; paring back current spending plans; announcing more tax rises, which could be conditional on changes within the coming years; or doing nothing and breaking her rule.
Former U.K. Finance Minister Vince Cable told CNBC on Friday that higher bond yields were being seen in many countries and were not an"emergency panic situation" — but that markets had realized Britain was stuck in a"slow growth trap."
UK ECONOMY BOND YIELDS FISCAL POLICY STERLING INTEREST RATES
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