Plenty of concern about UK economy but this isn't a Liz Truss moment
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How worried should Rachel Reeves be about the fact that the interest rates on government bonds have leapt to the highest level in more than a quarter of a century?. More to the point, how worried should the rest of us be about it?. After all, the interest rate on 30-year government bonds (gilts, as they are known) hit 5.37% today—the highest level since 1998. The interest rate on the benchmark 10-year government bond is also up to the highest level since 2008.
Higher government borrowing rates mean, rather obviously, that the cost of all that investment Keir Starmer has promised in the coming years will go up. And since these rates reflect longer-term expectations for borrowing costs, in practice it means everything else in this economy will gradually get more expensive.
Money blog: Billionaire Premier League owner 'thinking of leaving UK' after budget. There are short-term and long-term consequences to all of this. In the short run, it means it will be harder for Ms Reeves to meet those fiscal rules she set herself. Back at the budget, she left herself a (in fiscal terms) paper-thin margin of £9.9bn not to overshoot on borrowing vs her new rules.
According to Capital Economics, based on recent market moves, that margin might now have been eroded down to around £1bn. Chancellor on course to tighten Whitehall budgets further due to worsening economic outlook. UK long-term borrowing costs highest this century.
