Pound tumbles and gilt yields rise as Reeves faces fresh market turmoil
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The pound sank for a fifth day in a row yesterday and long-term government borrowing costs hit a fresh 27-year high amid deepening fears over Labour’s stewardship of the economy. In another setback to Rachel Reeves as she returned to the UK after a trip to China, sterling slumped by as much as a cent to a 14-month low of $1.21 against the US dollar.
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The currency is 10 per cent below its pre-Budget peak in September and has fallen by nearly five cents in just a week. The pound also lost ground against the euro, languishing below €1.19 at a two-month low. And yields on 30-year gilts climbed close to 5.5 per cent, the highest since 1998, while ten-year yields hovered around 4.9 per cent, close to the 17-year high reached last week.
Gilts are bonds sold by the UK Government to raise money. When their prices fall, yields rise. Slump: The pound is now 10% below its pre-Budget peak in September and has fallen by nearly five cents in just a week. Higher yields mean investors are demanding higher returns for lending to Britain. In a further headache for ministers and the Bank of England hoping to keep a lid on inflation, the price of a barrel of Brent crude rose to $81.68, a five-month high.
The latest moves add to the turbulence seen on markets last week – which was set off by jitters over US borrowing and inflation but quickly saw investors turn on Britain amid doubts that Reeves’s tax and spending plans will hold together. The rise in bond yields has further limited the Chancellor’s options, adding an estimated £10billion a year to Britain’s debt interest bill.
