Government borrowing costs keep rising as pound sinks to lowest level in over a year
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Sterling fell nearly 1 per cent to just under 1.23 US dollars – its lowest level since November 2023. The pound has tumbled to its lowest level against the US dollar for over a year as government borrowing costs surged further, heaping yet more pressure on Labour over its fiscal plans.
Sterling weakened again on Thursday morning amid a deepening rout in UK government bonds – also known as gilts – with the pound falling nearly 1 per cent to just under $1.23 US dollars – its lowest level since November 2023. Yields on government bonds – which reflect the cost of government borrowing – continued to rise, up eight basis points to 4.89 for 10-year gilts, which is the highest since 2008.
The cost of longer-term borrowing also continued to rise, with the yield of 30-year gilts at their highest level since 1998. They were up around three basis points to a peak of 5.39 per cent. The rise in gilt yields has an inverse effect on the price of these government bonds, which are falling as a result, with some saying the current market woes echo those seen in the fallout from the disastrous mini-budget of former prime minister Liz Truss in 2022.
Economists have warned Chancellor Rachel Reeves could be forced into further tax hikes or cuts to spending plans to meet UK fiscal rules after the jump in government borrowing costs. The rise in the cost of servicing government debts could cut into Labour’s expected financial headroom in a potentially worrying sign of how investors see fiscal sustainability in the UK.
