UK government borrowing costs hit their highest level in 19 years on Thursday, pushing Bank of England governor Andrew Bailey to publicly press chancellor John Healey for a credible budget. The gilt selloff tracks a wider global bond rout tied to inflation fears and Middle East tensions, with France and the United States also under pressure.
The yield on 10-year UK government bonds jumped 0.06 percentage points to 5.515% by lunchtime in London on Thursday, the highest level since July 2007, when the global financial crisis was starting to unfold. Bank of England governor Andrew Bailey used a conference in Istanbul to press chancellor John Healey for a fiscal policy credible enough to reassure markets ahead of the budget on 28 October.
Bailey presses Healey on budget credibility
Bailey told Healey that "it must be credible and be seen as such by financial markets", arguing that realistic commitments to rein in debt would curb investor demands for higher returns during shocks. His intervention follows a recent bond rout that has sharply increased UK borrowing costs.
Economists believe the rising yields and a weaker growth outlook are likely to have wiped out around half of the £24bn buffer against Labour's fiscal rules built up at the spring statement, perhaps significantly more. Healey is expected to raise taxes at the budget to partly rebuild that cushion while funding a VAT cut on electricity bills and an energy support package for poorer households.
Gilt selloff intensifies as oil prices soar
Yields on 20- and 30-year gilts also rose to their highest level since 1998. They later dropped back on a volatile trading day, but analysts said further conflict in the Middle East would likely push them up again as concerns grow that inflation is becoming embedded in major economies.
The selloff has intensified as oil prices have soared amid the unresolved Middle East conflict. The Bank of England is widely expected to raise interest rates at its November meeting to tackle surging inflation, echoing moves already made by the European Central Bank, Federal Reserve and Bank of Japan.
Pressure spreads to France and the US
France has been hit hardest among major economies, with its 10-year bond yield up nearly 80 basis points since the start of September, reaching its highest level since July 2002, just short of 5%. IMF managing director Kristalina Georgieva has urged governments to tighten their belts in response to rising bond yields.
In the US, Treasury secretary Scott Bessent tried to rein in long-term yields by increasing buybacks of government bonds, but the policy appears to have had little impact: yields on the 30-year treasuries he targeted rose from about 5.235% in August to above 5.7% since then.
Source: The Guardian
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