Sterling tumbled and gilt yields rose again yesterday as investors baulked at Labour’s latest borrowing binge.
The Government borrowed another £18billion last month as it ramps up spending – sparking Tory accusations that Rachel Reeves has ‘lost control of public finances’.
The Chancellor has now overseen borrowing of £83.8billion in the first five months of the fiscal year – £11.4billion more than forecast – spending far more on the State than is raised in tax.
There is now a gaping black hole in her Budget plans, setting the scene for another round of tax hikes and more borrowing in November.
But with analysts warning this would create a ‘doom loop’ by weakening an already flatlining economy, the pound fell around 0.5 per cent against the US dollar to as low as $1.3460.
Sterling was trading at $1.3726 just days earlier – its highest in more than two months – and has now suffered its biggest two-day drop since July. The slump came even after the Bank of England left interest rates unchanged at 4 per cent on Thursday. Higher rates tend to support a currency but analysts said the pound is out of favour as Reeves lacks a ‘credible’ plan to put the economy and public finances on a firm footing.
Nothing to smile about: Rachel Reeves has now overseen borrowing of £83.8billion in the first five months of the fiscal year – £11.4billion more than forecast
At the same time, borrowing costs spiked higher on global bond markets, with the ten-year gilt yield rising close to 4.73 per cent and the 30-year yield topping 5.56 per cent.
British bond yields are the highest in the G7 – so it costs the UK more to borrow than any of the other major developed economies.
Traders have also taken out their biggest bets against the pound in the three years since Liz Truss’s economic meltdown.
Lale Akoner, global analyst at trading firm Etoro, said investors are ‘actively demanding a higher risk premium for UK debt’. The bond yields’ surge raises the cost of borrowing.
The Office for National Statistics yesterday said interest payments on the £2.7trillion national debt hit £8.4billion last month. Ashley Webb, an economist at Capital Economics, said the Chancellor’s ‘tricky fiscal situation just got trickier’.
Reeves is widely expected to raise taxes, and even sanction further borrowing in November’s Budget. AJ Bell investment director Russ Mould said: ‘The Government continues to say it will get its finances under control, but the clock is ticking to convince the nation that the plan is the right one.’
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