Friday was grim enough, when the Office for Budget Responsibility handed her what’s expected to be a stinging downgrade to UK productivity. That means slower growth ahead and a potential £40billion hole in her plans for the November 26 Budget.
Today, things have taken a darker turn as gilt yields, the interest Britain pays to borrow money, surge yet again. They were already at their highest level since the late 1990s as global investors lose confidence in Labour’s ability to control the nation’s finances. Now they’ve climbed higher still.
The Chancellor’s fiscal mistakes are combining with a wider global firestorm that consume France, the US, Japan and Britain too.
Today, the yield on 30-year gilts has spiked to 5.58%. That’s way higher than during Liz Truss’s mini-Budget meltdown, when yields peaked at 5% on September 27, 2022.
It also means taxpayers must hand over even more to service the national debt.
Reeves is expected to borrow around £150billion this year. Of that, a staggering £105billion will go purely on interest, double the defence budget.
Every tick higher in yields adds more to the bill, and Reeves will plug the gap through yet more tax rises.
Around the world, debt is spiralling. Morgan Stanley has said the “outlook for advanced economy debt has worsened” due to rising interest costs and fiscal deficits.
Yet on Wall Street, shares are shrugging off the threat to hit new record highs, fuelled by the artificial intelligence (AI) frenzy that now dwarfs the late-1990s dot-com bubble.
Julien Garran at The MacroStrategy Partnership calculates that the scale of speculation is 17 times larger than the late 1990s tech bubble.
He reckons it’s four times bigger than the 2008 housing boom, which helped trigger the financial crisis. When the AI bubble bursts, the fallout could be brutal.
Investors are fleeing to safety. Safe-haven gold has hit a record $3,946 (£2,923) an ounce and looks set to break $4,000 for the first time. Bitcoin has soared past $125,000, as investors panic due to the dysfunctional US government.
Markets are losing faith in governments everywhere, and Reeves has left the UK horribly exposed. With yields on fire and borrowing costs through the roof, her entire Budget could go up in smoke.
