British Chancellor of the Exchequer Rachel Reeves poses with a red budget box outside her office in Downing Street on October 30, 2024 in London, England.
Maya Smikowska | Reuters
LONDON – Britain’s borrowing costs rose to their highest level on Wednesday since the start of the Labor government, after Chancellor of the Exchequer Rachel Reeves announced major tax increases in her first Budget.
Britain’s 10-year bond yield rose as much as 7 basis points (bps) in the hours after Reeves’ announcement, hitting its highest level since he took office in early July. By 4pm UK time (12pm ET), the yield had fallen to 4.35%, an increase of 3 basis points.
The yield on Britain’s two-year bond, known as Gilt, rose by more than 6 basis points to 4.33%, after rising as much as 10 basis points.
Yields move in the opposite direction to prices, so higher yields are generally seen as a sign of greater risk to investors.
The budget includes 40 billion pounds ($52 billion) worth of tax increases to plug the hole in the public finances, with Reeves pledging to work towards a daily spending surplus and boosting public services. Enable investment expansion.
Separately, the Treasury announced that gold issuance for the year would be increased by 22.2 billion pounds ($28.9 billion) to 299.9 billion pounds to meet net funding needs.
Compared to past turmoil in recent years, the gold market has remained relatively stable.
Yields soared in September 2022 after announcing billions of dollars in unfunded tax cuts under former Conservative Chancellor Liz Truss. Market movements were so severe that they threatened to destabilize Britain’s pension funds, requiring emergency intervention from the Bank of England and forcing Truss to retract most of his changes and resign within weeks. It’s gone.
Analysts had said ahead of the October 2024 budget that such changes were unlikely to be repeated for a variety of reasons. These included the fact that a number of key policies had already been announced and that increased borrowing would be used to finance public investment.
Most importantly, inflation has fallen sharply in the UK since Mr Truss’s time, with the latest print reading at 1.7%, compared to 10.1% under Mr Truss.
Joe Maher, assistant economist at Capital Economics, said: “With inflation returning to the Bank of England’s 2% inflation target and interest rates trending downward, investors are looking at easing fiscal policy. “I think it’s likely that there will be more tolerance.” On Monday’s memo.
Sanjay Raja, chief UK economist at Deutsche Bank Research, said the Reeves Budget “represented a remarkable shift in fiscal policy”, with public service spending set to rise by £50bn by the end of 2010 and investment spending set to rise further. Said to increase by 1 pound. 20 billion.
“Eventually, markets will have to deal with increased borrowing…For now, markets remain broadly optimistic about the Chancellor’s plans. This suggests that more gold leaf issuance will take place,” said Raja.
“Similarly, despite the Chancellor’s decision to reset the fiscal framework today, space remains an issue…Public spending pressures are likely to increase further, with the Chancellor expected to decide whether to raise or cut further taxes or “We will have to walk a tightrope between ‘spending in a way that does not violate the newly drawn up fiscal charter.’
Correction: Headline has been updated to reflect that the government increased taxes in Wednesday’s budget.
