The UK government faces concerns as borrowing costs surge to decade highs following the Labour government's debut budget plan. Economists warn of a 'vicious circle' where rising yields strain public finances, leading to tighter fiscal policy that further harms the economy. Waning investor confidence is reflected in a falling pound, while external factors like Donald Trump's return to power and higher global interest rates also weigh 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.
Tukker cited analysis by the independent Office of Budget Responsibility which indicates that the recent rise in yields — if sustained — would wipe out the government's estimated headroom of £9.9 billion for meeting its. Those regulations commit Labour to covering day-to-day government spending with revenues, as well as a goal of moving toward a decline in the U.K.'s debt to GDP ratio on a longer timeframe.
Bank of America Global Research strategists on Friday said that it was unlikely Labour would breach its rules and would instead announce further fiscal consolidation — measures to reduce public debt, generally public spending cuts or tax hikes — in the spring or earlier. "We've been there for many years, since the Financial Crisis, then Brexit, then a problem with Covid and Ukraine war, and we're stuck with relatively high inflation, very slow growth, and so the markets are marking the U.K. down, relatively speaking. But this is not a panic situation, it's not a crisis of the old-style balance of payment sell-off situation," Cable said.
UK ECONOMY GOVERNMENT BONDS FISCALPOLICY BORROWING COSTS INVESTORCONFIDENCE
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