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Britain’s finance minister was forced to field questions from MPs about the turmoil in Britain’s bond market as the government’s borrowing costs hit their highest level since the financial crisis.
Lord Lindsay Hoyle, leader of the House of Commons, said he had accepted an urgent question from the Conservative opposition to British Prime Minister Rachel Reeves on the “increasing pressure of borrowing costs on public finances”.
Mr Hoyle’s ruling that the Chancellor of the Exchequer should appear in Parliament on Thursday morning sent the 10-year gold yield up 0.12 points in early trade to 4.93%, its highest level since 2008. After that, it decreased to 4.84%. .
Reeves is about to leave for a long-planned trip to China and sent his aide, Darren Jones, to answer questions.
The pound fell as much as 1% against the dollar to $1.224, its lowest level since November 2023, and was recently trading at $1.228.
Analysts at Brown Brothers Harriman said: “The decline[in sterling and gold coins]reflects a deterioration in the UK’s fiscal outlook.”
Sterling was also hit by the dollar’s resurgence as a recent set of US economic data boosted investor confidence in the world’s largest economy, while British sentiment soured.
Britain’s borrowing costs have soared as investors worry about the government’s large borrowing needs and the growing threat of stagflation, a combination of lackluster growth and persistent price pressures.
“The economy is entering stagflation,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management.
Recent bond market tensions have also raised concerns about tax increases and spending cuts. The Ministry of Finance has indicated that it will cut spending rather than increase taxes.
In an appearance in the Commons on Thursday, Chancellor of the Exchequer John Jones claimed Labor was tackling the financial “mess” left behind by the last Conservative government, which left people with a £22bn “black hole”. He claimed that he had done so. Finances.
But Mel Stride, the shadow chancellor who raised the urgent question, said Mr Reeves himself should have appeared in parliament.
“Where is the Prime Minister?” he asked. “It is very unfortunate that in these difficult times with such serious issues, she herself is nowhere to be seen.”
Chancellor Reeves left a tiny £9.9bn leeway for revised fiscal rules in last autumn’s budget, even after announcing a £40bn tax increase aimed at “wiping the slate clean” on the public finances. Ta.
Since then, rising bond yields have threatened budget space. The level of bond yields is a key factor in determining budget space, given its impact on the government’s interest bill of more than £100bn a year.
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Analysts said they could see another sell-off in the bond market on Friday if U.S. bond yields rise, dragging gold prices as they closely monitor U.S. jobs data.
“If we see a strong employment report, it could be a very challenging situation for UK bonds,” said Pooja Kumra, UK rates strategist at TD Securities.
Analysts said the simultaneous fall in gold and sterling was an echo of the backlash caused by Liz Truss’s “mini” budget for 2022.
However, many investors believe the situation will fall short of the 2022 sovereign debt crisis.
“I expect things to start bottoming out… We’ve already seen a washout last year in gold stocks,” said Jeffrey Yu, senior strategist at BNY. “I’m not denying there are problems in the UK, but when you suddenly start comparing things to 2022, I think that’s what’s driving things forward.”
