Latest news with #government debt
Times
21 hours ago
- Business
- Times
Rachel Reeves warned that deregulation risks financial crisis
The governor of the Bank of England has warned Rachel Reeves that cutting red tape on the banking sector risks sparking another financial crisis as he downplayed the rise in UK government debt costs. Andrew Bailey told a group of influential MPs on Tuesday that rolling back restrictions on the City and ditching bank ringfencing guidelines could destabilise the UK financial system and 'would not be [a] sensible' decision for the time being. In a near two-hour long session with the Treasury select committee before the parliamentary summer recess, Bailey also said that the rise in long-term government debt costs was not 'unique' to the UK. He said investors were ditching US assets to curb their exposure to the dollar owing to concerns about the economy since President Trump returned to the White House. The governor, who, alongside his role at the central bank, recently took up the chairmanship of the Financial Stability Board, said he could understand why some people would think that 'the financial crisis is now way in the past, we've got past that, that's all solved, that's all out of the way, move on'. However, he said that 'for those of us who were veterans of sorting the problems of [the financial crisis] out' there remained a live threat to financial stability which required lawmakers to retain robust regulations. His comments come after the chancellor told bankers at the annual Mansion House dinner this month that the UK's regulatory regime was a 'boot on the neck' of businesses which risked 'choking [them] off'. Bailey, 66, said he would not have used such phrasing. Reeves announced that the government would reform laws that require lenders to separate their retail and investment banking businesses, a requirement put in place after the 2008 global financial crisis to shield depositors from banks' riskier activities. Several City grandees, including Sir John Vickers, the architect of the ringfencing rules, have expressed concern at the government's deregulation drive, which is intended to reverse weak economic growth. Bailey also downplayed the rise in UK government borrowing costs and said that it was part of a worldwide trend created by Trump's volatile tariff policymaking and a general rise in public deficit spending. 'We've seen an increase in term premium in government bond markets… yield curves have steepened', Bailey said, adding this was 'a global phenomenon, it is not in any sense unique [to the UK]'. The rate on the 30-year UK government bond, or gilt, stands at 5.43 per cent, up from 4.67 per cent compared to a year ago. The yield, which moves inversely to prices, on the US equivalent has risen to 4.93 per cent from 4.48 per cent over the same period. Bailey's comments come as figures from the Office for National Statistics on Tuesday showed that UK debt interest spending jumped to £16.4 billion in June, the second-highest for that month since the records began in 1997. Government borrowing topped £20 billion in the month also, above the Office for Budget Responsibility's projection for the month, strengthening expectations for tax increases at the autumn budget. Trump's erratic decision-making on how much to tax imports from specific countries had led to 'rebalancing' among markets 'which involves a reduction in exposure to dollar assets', Bailey said. The dollar index, which measures the greenback against six comparable currencies, is down nearly 10 per cent since the start of the year. The governor said that, judging by conversations with market participants and based on granular data, 'the most crowded trade in the market at the moment is short dollar'. He said that since Trump first announced his 'reciprocal tariffs' in April, there had been 'a breakdown in established correlations in markets'. Stock markets globally jolted lower in the immediate aftermath of Trump's first tariff announcements, with the S&P 500 index posting one of its largest losses since the Great Depression. However, an equity rally has since pushed several indices to a record high. This week, the FTSE 100 closed at its highest-ever level of just over 9,000 points. Taxes on goods imported to the US from most countries will increase sharply from August 1 after Trump delayed the implementation of his 'reciprocal tariffs' several times.
Bloomberg
6 days ago
- Business
- Bloomberg
China Injects Most Short-Term Cash This Week Since January
China ramped up its short-term cash injection into the banking system to the highest since January this week as it sought to replenish funds drained by tax payments and heavy government debt issuance. The People's Bank of China added a net 1.3 trillion yuan ($181 billion) of cash into the financial system through seven-day reverse repurchase agreements this week, according to Bloomberg calculations.
Bloomberg
6 days ago
- Business
- Bloomberg
Debt Demands Rise in Canada as Carney Prepares More Spending
The supply of Canada's government debt is set to hit a record this fiscal year as Prime Minister Mark Carney pledges to use the federal balance sheet to make investments in the economy. Gross issuance — the amount of government of Canada bonds and treasury bills put to market — is expected to rise to C$612 billion this fiscal year, according to an updated debt management strategy released by the Department of Finance on Wednesday.
Yahoo
15-07-2025
- Business
- Yahoo
Japan Bond Rout Touches New Pain Point as 10-Year Yield Rises
(Bloomberg) -- Japan's long-term government debt yield touched the highest level since 2008, as a raft of election tax-cut pledges puts investors on edge and risks higher costs all around in the country. Why Did Cars Get So Hard to See Out Of? Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year Tuesday's rise of 2.5 basis points in the 10-year yield — to 1.595% — while modest, is a reminder that it's not just bonds of 20 to 40 years that are under pressure, even if the most extreme moves have been in these super-long maturities. The uptick shows the increased vulnerability of Japan's bond market after its central bank started pulling back from massive purchases that placed a protective cushion around yields for more than a decade. An upper house election on Sunday that could see the ruling coalition lose its majority is further fueling concerns that the government will loosen its grip on its finances even more, adding to pressure on yields. 'The biggest story in Japan this week must be the spiking yields' that is playing up again, said Amir Anvarzadeh, Japan equity strategist at Asymmetric Advisors Pte. 'Bond vigilantes are finally focusing on Japan,' where debt to gross domestic product is elevated, a quarter of the annual budget is set aside for refinancing debt that was issued at lower rates, and politicians are talking about tax cuts to secure power, he said. Prime Minister Shigeru Ishiba's government is promising to ramp up spending through a familiar approach of cash handouts, while opposition parties are largely campaigning on much more expensive plans to lower the sales tax. The latest polls suggest the ruling coalition is in danger of losing its majority in the upper house, further complicating its ability to press ahead with policy and putting more pressure on it to cut taxes. If the upward movement in yields continues after the election, calls may increase for authorities to do more. Already, the Bank of Japan has announced plans to slow down its withdrawal from the market and the Finance Ministry has trimmed its issuance of debt at the super-long end. The government is closely monitoring market moves of Japan's sovereign debt, according to Economic Revitalization Minister Ryosei Akazawa, who added that fiscal concerns won't stop the government from making the necessary budget allocations to realize its economic goals. He expects the country's fiscal health to improve as a more growth-oriented economy emerges, projecting the kind of messaging bond vigilantes often jump on. The selloff in Japan's $7.7 trillion bond market is already spilling over into major debt markets, amplifying ructions driven by fears that governments around the world are spending more than they can afford. Japan's 20- and 30-year yields both climbed to their highest levels since 1999 on Tuesday. The 10-year bond yields are particularly watched because they are seen as having a direct impact on household and business spending through higher mortgage rates and other borrowing costs. Atsushi Takeda, chief economist at Itochu Research Institute, said businesses broadly don't take on debt in the super-long end, hence the rise in 10-year bond yields is something 'we must keep a close eye on.' Earlier spikes in yields in April and May slowed growth in loans by the nation's banks, hinting at the caution they generate for both borrowers and lenders. Average long-term loan rates among domestic banks in April hit the highest since 2009 at 1.428% before edging down in May. The latest gain in yields may push rates up again. The 10-year yield is being driven by instability in super-long bonds due to demand concerns and declining liquidity, said Takahiro Otsuka, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. 'It can't be said with certainty that the 10-year yield will stop rising at around the 1.6% level.' Any runaway increase in this yield would be detrimental to Japan's finances, according to Mizuho Financial Group Inc.'s chief executive officer. If it goes beyond 3% or so, that would hurt the budget, according to Masahiro Kihara, CEO of Japan's third-biggest bank, who spoke in a Bloomberg Television interview. What Bloomberg Strategists say: 'The common thread between US, European and Japanese long-term debt is that fiscal policy is carrying more weight than monetary policy in terms of setting market yield genie is out of the bottle and not going back in any time soon.' — Mark Cranfield, MLIV Strategist. Read more on MLIV. 'The environment for selling bonds will continue,' said Tadashi Matsukawa, head of bond investments at PineBridge Investments Japan Co. 'Buybacks from the Ministry of Finance could be one of the key measures to stabilize yields.' For now, policymakers will likely try to play down the vulnerability of the market. Japan's Finance Minister Katsunobu Kato said on Monday that bond yields are decided by market participants, and he would refrain from commenting on specific moves. Bank of Japan Governor Kazuo Ueda has said the nation's super-long yields have a limited impact on the real economy compared to shorter-term debt. Developments will be carefully monitored, he said. Meanwhile, some market observers see the gains as a pre-election spike rather than a trend that threatens economic growth or the nation's government. The consensus among JGB investors is that any implementation of a consumption tax cut will be temporary and limited, said Ryutaro Kimura, a senior fixed-income strategist at AXA Investment Managers Japan Ltd. in Tokyo. 'Upward pressure on interest rates is likely to peak out once uncertainty over fiscal policy recedes after the election.' --With assistance from Yoshiaki Nohara, Masahiro Hidaka, Aya Wagatsuma, Gregory Turk and Paul Jackson. (Updates throughout with additional comments.) Thailand's Changing Cannabis Rules Leave Farmers in a Tough Spot The New Third Rail in Silicon Valley: Investing in Chinese AI 'Our Goal Is to Get Their Money': Inside a Firm Charged With Scamming Writers for Millions 'The Turbulence Is Brutal': Four Shark Tank Businesses on Tariffs Will Trade War Make South India the Next Manufacturing Hub? ©2025 Bloomberg L.P. 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Yahoo
12-07-2025
- Business
- Yahoo
Faisal Islam: We are heading for significant tax rises
Two very different reports have reignited UK economic gloom over the past four days. Friday's economic figures showed a further monthly dip in UK growth, or GDP, in May. Earlier this week the official forecaster, the Office for Budget Responsibility (OBR), said Britain faced "daunting" risks, including the possibility that levels of government debt could soar to three times the size of the economy. Two very different timescales - the economy in a single month, and the public finances in half a century's time. At another moment both might have been largely ignored. Monthly GDP figures are notoriously volatile, and what does a debt forecast for 2075 even begin to mean? What would the Treasury forecast from 1975 tell us about this year? But these very different charts are setting the tone for some tricky judgements required by autumn and tough calls about what happens in the next half decade. The really unusual thing about the OBR's long-term risk and sustainability report was the strength of the words from its boss Richard Hughes. "The UK cannot afford the array of promises that are displayed to the public," based on reasonable assumptions about their cost and growth, he said. The report also cited a pattern, over multiple governments, of U-turns on tax and spending changes. It came within days of the government's reverses over welfare savings and the winter fuel payment. Among 36 advanced economies, the UK now has the sixth highest debt, the fifth highest annual borrowing, and the third highest borrowing costs leaving it "vulnerable", when compared to other countries, to future crises, the OBR found. The clear message was that repeatedly borrowing more is not a long-term solution to rising day-to-day spending pressures. Yet the pressure to spend more may prove stubborn, thanks to geopolitical and societal changes. The OBR's existing forecasts assume that the post-pandemic surge in incapacity and disability cases will fall half way back to normal by 2029. This is very uncertain. Local councils are now spending 58% of their revenue on social care for adults and children, with some councils spending more than 80%. A £4.6bn special financial arrangement to deal with ballooning special educational needs budgets risks mass local authority bankruptcy. The promise to increase defence spending to the new Nato target of 3.5% will cost nearly £40bn per year by 2035. The OBR's report was basically a polite plea for some realism about the choices ahead. A government with a massive majority and four more years would normally be expected to have the strength to make these sorts of decisions. As pointed out before the last election, there was little attempt to level with the public, especially over taxation. The big picture is that this autumn's Budget may see £10bn to £20bn of further tax rises. On top of this, Trump's tariffs have triggered profound uncertainty. That has pushed up UK government borrowing costs. But they are also prompting a more fundamental shift in the foundations of the global economic system, with the dollar and US government debt no longer treated as unbreachable safe havens. So how might the chancellor respond to these challenges? She may choose to rebuild the so-called "headroom" to give her a better chance of meeting her self-imposed borrowing limits. Currently that buffer is a very tight £10bn. Reeves has said she will stick to her plans to not borrow to fund day-to-day spending and to get government debt falling as a share of national income by 2029/29, despite some concern from MPs. But she is considering the International Monetary Fund's advice to only adjust her plans once a year, rather than in both spring and autumn. But there may still need to be a kitchen sink approach to this autumn's Budget, with the chancellor throwing everything she has at fixing the public finances. Ministers have not abandoned the idea of finding savings in the health-related welfare bill. A discussion is opening up about whether the Personal Independence Payment (Pip) benefit, designed to help pay for physical equipment, is the right vehicle to manage the specific surge in mental ill health. On the other hand, while politicians acknowledge the cost of the state pension triple lock is far higher than originally forecast, that policy seems to be utterly politically impregnable. So we are heading for significant tax rises. The expected further freeze on income tax thresholds will not be enough. The noise around wealth taxes points to property and inheritance taxation, as baby boomers start a mass transfer of trillions of pounds of housing equity to their children. Expect the Treasury to think very hard about what size of net it might lay in the water to ensnare bountiful revenues, aimed at funding the costs of an ageing society without levying that burden entirely on working households. Of course the great hope is the return of robust economic growth to smooth the way. Reeves' fiscal rules have left space for longer term investments in infrastructure, although the planning reforms will take some time to yield a construction boom. The UK's position as a comparatively stable island in a sea of trade tumult, should also yield dividends. Some of the world's most important business people, such as Jensen Huang of Nvidia, were falling over themselves to praise the UK's investment potential for frontier tech. The very latest economic news does contain some perking-up in levels of confidence over the past few weeks, and more interest rate cuts are on the way. Some City economists say the gloom is overdone and we are "past the worst". UK stock markets and sterling remain strong. So that is the long-term challenge laid down by the OBR, balance the books and boost the economy. A government that should still have four years of a thumping majority has the necessary power, but the past month has raised concerns about its authority. Reeves disappointed after economy unexpectedly shrinks Reeves' five choices to turn government finances around Faisal Islam: How much will U-turn on disability benefits cost? Error in retrieving data Sign in to access your portfolio Error in retrieving data
