Rachel Reeves was accused of “yet another economic disaster” as the value of the pound tumbled and the cost of Government borrowing hit a 27-year high. Financial markets issued “a clear vote of no confidence” according to Conservatives, after Sir Keir Starmer’s attempt to revamp his Downing Street team went horribly wrong.
The Prime Minister announced this week that his government had entered a “second phase” with a new focus on growing the economy. Sir Keir brought Darren Jones, previously Chief Secretary to the Treasury, into Number 10 to take charge of delivering the Prime Minister’s agenda. Former Treasury civil servant Daniel York-Smith also moved to the Prime Minister’s office and economist Minouche Shafik was appointed as Sir Keir’s economic adviser.
But the markets delivered a devastating verdict on the changes today, as the value of the pound fell by 1.1% against the dollae while Britain’s long-term government borrowing soared to a 27-year high.
Shadow Chancellor Mel Stride said: “With UK borrowing costs hitting a 27-year high, and the pound suffering its worst day in nearly three months, it’s yet another economic disaster from Rachel Reeves – and a clear vote of no confidence in Labour from the markets.
“This is what happens when you have a government with next to no business experience.
“Labour promised stability but they’ve doubled inflation, delivered soaring debt and destroyed business confidence.
“With more tax rises on the horizon, the economy is now in a precarious position.”
The yield on UK government bonds – also known as gilts – jumped to the highest level since 1998, at 5.698%, meaning it costs more for the Government to borrow from financial markets.
Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise.
The pound also tumbled as the bond sell-off intensified, with sterling also down by 0.6% lower against the euro.
It comes as worries mount over the UK’s finances, with Ms Reeves looking to fill an estimated £51 billion black hole.
The higher gilt yields make the Treasury’s problems worse as they increase the cost of servicing the Government’s debt.
Government bonds have also been under pressure globally, with yields rising across the United States and Europe.
But the UK is facing particular home-grown challenges ahead of the autumn budget, with concerns that Ms Reeves will be forced to hike taxes and slash spending to balance the books.
Neil Wilson, UK investor strategist at Saxo Markets, said: “The market move was a sign that investors do not have confidence the Treasury will stick to its strict borrowing rules.
“30-year yields at their highest in almost three decades is not a good look for the Labour government, and underscores that there is little fiscal or economic credibility left.”
