Markets ‘orderly’ despite soaring borrowing costs, says Treasury minister
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The Treasury has said UK financial markets are functioning “in an orderly way” despite the pound plunging to its lowest level for over a year after a rout in the bond markets. Government borrowing costs increased further on Thursday morning, piling more pressure on the Labour Government’s fiscal plans.
Uncertainty over fiscal stability and wider global pressures caused sterling to weaken, with the pound falling nearly 1% to just under 1.23 US dollars – its lowest level since November 2023. The FTSE 250 stock index also slid to its weakest level for nine months.
Treasury Minister Darren Jones said that the Government’s fiscal rules are “non-negotiable” but warned that “public services will have to live within their means”. It comes after economists warned that Chancellor Rachel Reeves could be forced into further tax hikes or cuts to spending plans to meet UK fiscal rules due to a potential rise in the Government’s debt interest bill.
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%. 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.
