Latest news with #FiscalPolicy
Daily Mail
08-07-2025
- Business
- Daily Mail
Labour's retreat on welfare reforms leaves Britain vulnerable to bond traders, warns ALEX BRUMMER
Never has Mark Carney's 2017 assertion that Britain is dependent on the 'kindness of strangers' felt so real. The former Bank of England governor, now Canadian Prime Minister, made his remarks in the context of Brexit. It is not divorce from the European Union, however, but the failure of successive governments to get to grips with the size of the state which has so empowered the bond markets. Pledges to reduce levels of UK government debt as a percentage of output have featured in eight of the last ten fiscal plans unveiled by Chancellors of the Exchequer, says the Office for Budget Responsibility (OBR) in its latest fiscal risks report. Yet despite the declared targets, underlying debt has jumped by 24 per cent of national output over the past 15 years and by 60 per cent over two decades. The consequence is that the yield on government long-term bonds, gilt-edged stock, is higher now in Britain than at any time since the start of the 21st Century. A failure to get a grip, symbolised by retreat on welfare reforms, increasingly leaves Britain vulnerable to bond traders. That was seen most clearly during Liz Truss's brief period as Prime Minister in 2022. It has also reared its head when Labour took the helm a year ago despite an eye-popping £40billion tax raising budget last October. It notoriously failed to steady the ship. Bond yields spiked last week when it was feared that Chancellor Rachel Reeves might leave the Government after the retreat from welfare cuts. Amid the chaos, the hope is that despite tears in the Commons, the Chancellor would stick with her 'iron clad' fiscal commitments. Investment bank Goldman Sachs notes that 'the UK bond market sell-off largely stems from concerns about fiscal discipline'. Reneging on the welfare reform cuts is serious enough. But the 'UK now faces a structural deficit worsened by growth and employment forecasts'. The Labour narrative is that the problem can be fixed by tax rises in the Autumn with wealth in the line of sight. The OBR fiscal report suggests that this would only be a palliative unless fundamental changes to pensions and welfare can be delivered. Britain lacks the US anchor of a 'reserve' currency and Silicon Valley propelled growth to see off the pressure from the bond vigilantes. Vulnerability to the type of foreign speculator that Harold Wilson famously described as 'gnomes of Zurich' is profound. The switch in the UK from defined benefit (gold-plated) pension schemes to defined contribution pension plans, more likely to invest in equities than bonds, mean cornerstone buying of gilts will trend down. The OBR estimates that pension fund holdings of gilts will plunge from 29.5 per cent of gross domestic product in 2024-25 to 10.9 per cent by the 2070s. Foreigners, the Carney 'strangers', presently hold around 30 per cent of the debt stock. Overseas holders cannot but be aware that the UK has the third highest borrowing costs of any advanced economy but for tiny Iceland and New Zealand. Ideally, Britain would grow its way out of debt. It has the research universities, tech, science, creativity and financial innovation to do so with the right tax breaks for digital and cyber investment. It cannot do so while the albatross of rocketing pension, welfare and NHS spending hovers. The 'triple lock', costing the Exchequer three times more than projected at £15.5billion, needs to be revised. The unfunded public sector pension fund liability is ballooning along with public sector pay. An unreformed welfare system will need to be tackled. The number of working-age people classed as inactive since the pandemic has climbed to 780,000, above pre-Covid levels. It is driven by 660,000 citing long-term sickness as a cause of not working. The OBR estimates the extra welfare cost at £6.8billion a year and forgone tax revenues at £8.9billion. It is more attractive to go on the sick than claim unemployment benefit which is meaner and requires recipients to look for a job. Such changes dare not speak their name on the Left. If they don't happen, it will be mercurial gilt markets, rather than our elected politicians, that will have the biggest say.
Bloomberg
03-07-2025
- Business
- Bloomberg
Glapinski Says Surprise Polish Rate Cut Isn't Start of a Cycle
Poland's central bank Governor Adam Glapinski pushed back against growing market expectations that a surprise interest rate cut on Wednesday has kicked off an easing cycle. Glapinski described the quarter percentage point reduction as a 'cautious adjustment' and highlighted risks to inflation including loose fiscal spending, the uncertainty around energy prices and trade tensions. The next decisions will depend on incoming data, he told reporters in Warsaw on Thursday.
Daily Mail
03-07-2025
- Business
- Daily Mail
Gilts stage cautious rebound as Starmer backs Reeves to stay as Chancellor
UK government bond yields fell today after the Prime Minister ruled out sacking Chancellor Rachel Reeves, easing market concerns that sparked heavy losses yesterday. Keir Starmer said Reeves will remain in the job 'for years to come' after rumours of her imminent departure sparked a gilt market rout that saw long-term Government borrowing costs skyrocket on Wednesday. Ten and 30-year gilt yields – the interest on government debt that moves inversely to the price of the bond – were down 8 and 10 basis points, respectively by midday. However, the bounce falls short of losses suffered in the previous session, demonstrating lingering market uncertainty on the outlook for UK fiscal policy. Investors' expectations for UK inflation are well ahead of G7 peers as bumper public sector pay increases, a national insurance hike for employers and a higher living wage drive price rises in the wider economy. The consumer price index registered at 3.4 per cent in the 12 months to May, according to the Office for National Statistics, and inflation is not forecast to return to the Bank of England's 2 per cent target for some time. There are also concerns about Britain's ability to manage its finances as the Government's difficulty passing cuts to public spending clashes with its reticence to raise taxes amid weak economic growth. In response, investors sell UK government bonds and thereby drive up the cost of long-term borrowing. Ten-year gilt yields are 35bps to 4.5 per cent over the last 12 months, while 30-year yields are up 65bps to 5.3 per cent. Chief investment officer at Axa IM Chris Iggo said: 'Markets have taken the view that the government is politically unable to follow through on promises i.e. reduce welfare spending, ramp up defence spending and not increase income taxes. 'Despite a huge majority in parliament, the Labour government appears to have lost any room for manoeuvre when it comes to fiscal policy. 'Markets sense that abandoning the fiscal rules – allowing the deficit to increase relative to the previous baseline – might become politically tempting. 'Therefore, that means an increased fiscal risk premium in UK government bonds, which recalls the dramatic period in September 2022, when markets responded to then the Prime Minister Liz Truss's attempt to cut taxes to boost economic growth.'
Zawya
03-07-2025
- Business
- Zawya
Sterling steadies after selloff, fiscal worries prevail
Sterling edged higher on Thursday, stabilising after fiscal concerns and uncertainty about Rachel Reeves' future as Britain's finance minister sparked a selloff across UK assets in the previous session. Markets had been monitoring developments around a welfare bill in parliament where divisions within the Labour party forced Prime Minister Keir Starmer to back down on large spending cuts, leaving a hole in public finances. The selloff gathered steam on fears that Reeves would be replaced, but was contained as Starmer gave the finance minister his full backing. The government has been trying to stick to its self-imposed fiscal rules to try to build investor confidence. However, analysts warn that politically-difficult tax hikes might be needed to balance public accounts and avoid extra borrowing. "The immediate issue is that the government left a very narrow margin in March against their fiscal rules they set themselves," said a group of analysts led by Jim Reid at Deutsche Bank. "So unless we got a big burst of growth before the budget, then the government would need to announce further tax rises or spending cuts if they still want to meet the fiscal rules." Sterling edged up 0.1% to $1.365 after sinking 0.8% in the previous session - its biggest daily drop in more than two weeks. The currency also firmed 0.3% against the euro , which last fetched 86.3 pence. The relief was also visible in bond markets, where the yield on the 10-year gilt dropped 9 basis points. Yields had spiked on Wednesday, with those on the benchmark note at one point registering their largest one-day jump since October 2022. Higher yields would generally support the domestic currency, so Wednesday's reaction highlighted investors' pessimism. Global investors have been grappling with ballooning public debt in developed markets and have also been demanding greater premiums to hold them. Yields on British bonds are among the highest in the developed world. Wednesday's plunge in British assets immediately drew comparisons with Liz Truss' short-lived premiership in 2022, which was derailed by a bond market selloff. Traders expect the Bank of England to cut interest rates by 25 basis points again in September, according to data compiled by LSEG. All eyes will now be on a pivotal U.S. jobs report later in the day that could help gauge the Federal Reserve's monetary policy trajectory. (Reporting by Johann M Cherian Editing by Mark Potter)
Yahoo
03-07-2025
- Business
- Yahoo
FTSE 100 LIVE: Stocks rise while pound and UK bonds recover as Starmer backs Reeves
The FTSE 100 (^FTSE) and European stocks were higher on Thursday while the value of the pound also recovered as prime minister Keir Starmer assured traders that chancellor Rachel Reeves will remain in her role 'into the next election'. It came after government borrowing costs surged after the chancellor was seen shedding tears in the Commons on Wednesday while the prime minister failed to back her when questioned at the despatch box. The 10-year gilt yield, a benchmark for the cost of servicing the national debt, surged by nearly 16 basis points to 4.61%, while 30-year yields climbed 19 basis points to 5.42%. Meanwhile, sterling fell by a cent against the US dollar, sliding from $1.3745 to $1.3636, making it the worst-performing major currency in the world at the time, on the back of the news. Christian Kopf, head of fixed income at asset manager Union Investment Group, told BBC Radio 4's Today programme: 'Often we see jitters in the bond market which is caused by external events but yesterday it was different. Stocks: Create your watchlist and portfolio 'It was clearly caused by Prime Minister's Questions and by domestic events in the UK and the movement was very swift and very stark. 'It's about the future of the fiscal rule in the UK. Chancellor Reeves stands for that fiscal rule. Investors were growing concerned about the prospect of very high fiscal deficits that are no longer compliant with the fiscal rule and that would then give rise to higher yields and a weaker pound sterling. 'So people are really concerned about the consistency of economic policymaking in the UK.' Starmer has since reassured traders of Reeves' position. "She and I work together, we think together. In the past, there have been examples — I won't give any specific — of chancellors and prime ministers who weren't in lockstep. We're in lockstep," he said. The yield on UK 30-year bonds has dipped by 0.8% in early trading, to 5.361%. UK 10-year bond yields have also dipped by around three basis points, to 4.55% from 4.58% last night. These moves suggests the bond markets are relieved that the PM is standing by Reeves, easing concerns that a new chancellor might be less committed to the current fiscal rules. London's benchmark index (^FTSE) was 0.5% higher in early trade. Germany's DAX (^GDAXI) rose 0.4% and the CAC (^FCHI) in Paris headed 0.3% into the green. The pan-European STOXX 600 (^STOXX) was up 0.4%. Wall Street is set for a positive start as S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the green. The pound was 0.1% against the US dollar (GBPUSD=X) at 1.3665. Follow along for live updates throughout the day: Wednesday's slump in the pound, despite surging borrowing costs, was reminiscent of the Liz Truss-era meltdown in bond markets, analysts have said. Will Walker-Arnott, a director at wealth manager Charles Stanley said on Thursday: Meanwhile, Andrew Wishart, economist at Berenberg Bank said that 'investors probably saved the chancellor'. He said: The value of the pound recovered on Thursday as Keir Starmer assured traders that chancellor Rachel Reeves will remain in her role 'into the next election'. It came after government borrowing costs surged after the chancellor was seen shedding tears in the Commons on Wednesday while the prime minister failed to back her when questioned at the despatch box. The 10-year gilt yield, a benchmark for the cost of servicing the national debt, surged by nearly 16 basis points to 4.61%, while 30-year yields climbed 19 basis points to 5.42%. Meanwhile, sterling fell by a cent against the US dollar, sliding from $1.3745 to $1.3636, making it the worst-performing major currency in the world at the time, on the back of the news. Christian Kopf, head of fixed income at asset manager Union Investment Group, told BBC Radio 4's Today programme: Starmer has since reassured traders of Reeves' position. "She and I work together, we think together. In the past, there have been examples – I won't give any specific – of chancellors and prime ministers who weren't in lockstep. We're in lockstep," he said. The yield on UK 30-year bonds has dipped by 0.8% in early trading, to 5.361%. UK 10-year bond yields have also dipped by around three basis points, to 4.55% from 4.58% last night. These moves suggests the bond markets are relieved that the PM is standing by Reeves, easing concerns that a new chancellor might be less committed to the current fiscal rules. Asian shares were mixed overnight as investors braced for a key US jobs report and waited on the passage of US president Donald Trump's tax cutting bill in Congress. The Nikkei (^N225) rose almost 0.1% on the day in Japan, while the Hang Seng (^HSI) fell 0.8% in Hong Kong. The Shanghai Composite ( was 0.2% up by the end of the session as data showed China's services activity expanded at the slowest pace in nine months in June. In South Korea, the Kospi (^KS11) added 1.3% on the day despite president Lee Jae Myung saying that tariff negotiations were looking difficult and that he cannot confirm if talks can conclude by next Tuesday. Across the pond on Wall Street, US stocks climbed overnight to close at new record highs after president Donald Trump announced that the US has struck a trade deal with Vietnam, including a 20% tariff on exports to America. That is lower than the 46% tariff that had been threatened, but still much higher than previous rates. Vietnamese shares rose to their highest since April 2022. The local dong currency, however, dipped to a record low of 26,229 per dollar. The Dow Jones (^DJI) closed flat at 44,484.42, the S&P 500 (^GSPC) rose 0.5%, finishing at 6,227.42, and the tech-heavy Nasdaq (^IXIC) rose 0.9% to end at 20,393.13. In the bond market, the yield on benchmark 10-year US Treasury notes rose to 4.284% from 4.251% on Tuesday night. Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what's moving markets and happening across the global economy. To the day ahead we have US data releases including the jobs report for June, the ISM services index for June, the weekly initial jobless claims, as well as the trade balance and factory orders for May. Otherwise we'll get the final services and composite PMIs for June in the US and Europe. From central banks, we'll hear from the Fed's Bostic, and the ECB will publish the account of their June meeting. Here's a quick snapshot at what's on the agenda: 7am: Trading updates: Currys, Watches of Switzerland 9.30am: UK service sector PMI for June 10am: OECD Economic Survey of the European Union and Euro Area 1.30pm: US non farm payrolls, employment report for JuneWednesday's slump in the pound, despite surging borrowing costs, was reminiscent of the Liz Truss-era meltdown in bond markets, analysts have said. Will Walker-Arnott, a director at wealth manager Charles Stanley said on Thursday: Meanwhile, Andrew Wishart, economist at Berenberg Bank said that 'investors probably saved the chancellor'. He said: The value of the pound recovered on Thursday as Keir Starmer assured traders that chancellor Rachel Reeves will remain in her role 'into the next election'. It came after government borrowing costs surged after the chancellor was seen shedding tears in the Commons on Wednesday while the prime minister failed to back her when questioned at the despatch box. The 10-year gilt yield, a benchmark for the cost of servicing the national debt, surged by nearly 16 basis points to 4.61%, while 30-year yields climbed 19 basis points to 5.42%. Meanwhile, sterling fell by a cent against the US dollar, sliding from $1.3745 to $1.3636, making it the worst-performing major currency in the world at the time, on the back of the news. Christian Kopf, head of fixed income at asset manager Union Investment Group, told BBC Radio 4's Today programme: Starmer has since reassured traders of Reeves' position. "She and I work together, we think together. In the past, there have been examples – I won't give any specific – of chancellors and prime ministers who weren't in lockstep. We're in lockstep," he said. The yield on UK 30-year bonds has dipped by 0.8% in early trading, to 5.361%. UK 10-year bond yields have also dipped by around three basis points, to 4.55% from 4.58% last night. These moves suggests the bond markets are relieved that the PM is standing by Reeves, easing concerns that a new chancellor might be less committed to the current fiscal rules. Asian shares were mixed overnight as investors braced for a key US jobs report and waited on the passage of US president Donald Trump's tax cutting bill in Congress. The Nikkei (^N225) rose almost 0.1% on the day in Japan, while the Hang Seng (^HSI) fell 0.8% in Hong Kong. The Shanghai Composite ( was 0.2% up by the end of the session as data showed China's services activity expanded at the slowest pace in nine months in June. In South Korea, the Kospi (^KS11) added 1.3% on the day despite president Lee Jae Myung saying that tariff negotiations were looking difficult and that he cannot confirm if talks can conclude by next Tuesday. Across the pond on Wall Street, US stocks climbed overnight to close at new record highs after president Donald Trump announced that the US has struck a trade deal with Vietnam, including a 20% tariff on exports to America. That is lower than the 46% tariff that had been threatened, but still much higher than previous rates. Vietnamese shares rose to their highest since April 2022. The local dong currency, however, dipped to a record low of 26,229 per dollar. The Dow Jones (^DJI) closed flat at 44,484.42, the S&P 500 (^GSPC) rose 0.5%, finishing at 6,227.42, and the tech-heavy Nasdaq (^IXIC) rose 0.9% to end at 20,393.13. In the bond market, the yield on benchmark 10-year US Treasury notes rose to 4.284% from 4.251% on Tuesday night. Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what's moving markets and happening across the global economy. To the day ahead we have US data releases including the jobs report for June, the ISM services index for June, the weekly initial jobless claims, as well as the trade balance and factory orders for May. Otherwise we'll get the final services and composite PMIs for June in the US and Europe. From central banks, we'll hear from the Fed's Bostic, and the ECB will publish the account of their June meeting. Here's a quick snapshot at what's on the agenda: 7am: Trading updates: Currys, Watches of Switzerland 9.30am: UK service sector PMI for June 10am: OECD Economic Survey of the European Union and Euro Area 1.30pm: US non farm payrolls, employment report for June
