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There is a “high chance” that Rachel Reeves will be forced to announce emergency spending cuts this spring as borrowing costs surged again on Friday.
Soaring gilt yields mean the Chancellor’s fiscal headroom is “gone” and it is becoming increasingly likely that she will have to announce either cuts or tax rises to convince markets that she has borrowing under control, Barclays has warned.
The bank’s UK chief economist Jack Meaning said that, unless borrowing costs fall before the Office for Budget Responsibility (OBR) revises its forecasts for the public finances on March 26, “there is a high chance that the Chancellor is forced to make fiscal adjustments”.
He added: “We continue to think spending cuts are more likely than tax increases, but it is highly uncertain.”
A forced intervention would be a massive blow to Ms Reeves’s credibility after her manifesto pledge that she would hold only one Budget each year.
The warning comes after days of market chaos in which yields on 30-year government bonds hit their highest level since 1998, driving up the Treasury’s debt interest bill and eroding all of the tiny margin by which Ms Reeves was expected to meet her Budget borrowing targets.
When the OBR made its last forecasts at the end of October, Ms Reeves had fiscal headroom of just £9.9bn but market movements since then have slashed this by £10.2bn, meaning Ms Reeves is now on track to break her fiscal rules, Mr Meaning said.
Government borrowing costs climbed even higher on Friday after stronger than expected US jobs data pushed traders to slash their expectations for interest rate cuts on either side of the Atlantic.
Official figures showed the US economy added 256,000 jobs in December, smashing market expectations of 165,000 and sparking fears that inflation could stay higher for longer and that central banks will be unable to make as many interest rate cuts as hoped.
Traders have now fully priced in only interest rate cut from the Bank of England this year.
Despite the prospect of higher rates, which would normally strengthen an exchange rate, the pound fell by a further 0.82pc against the dollar, dropping to $1.22, the lowest level in more than a year and making it the worst-performing currency this year.
Analysts talked down the outlook for the UK economy, with Deutsche Bank strategist Shreyas Gopal telling investors to sell the pound because the falls have “further to go”.
The drop in the pound despite the jump in bond yields suggests investors are losing faith in the Chancellor’s ability to keep borrowing and inflation under control.
Goldman Sachs warned that mortgage costs are poised to rise as the jump in bond yields pushes up borrowing costs across the wider market.
James Moberly, of the investment bank, said in a note to investors: “We believe that a continued sell-off in gilt yields would raise pressure for the government to implement corrective fiscal action in March, rather than waiting for the Autumn Budget.”
A Treasury spokesman said: “This Government’s commitment to fiscal rules and sound public finances is non-negotiable.
“The Chancellor has already shown that tough decisions on spending will be taken, with the spending review to root out waste ongoing. And over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”
Read the latest updates below.
06:34 PM GMT
Signing off...
Thanks for joining us on this live blog. The pound is currently at $1.220, a fall of 0.7pc since this morning. In the bond market, the yield on 10-year UK gilts reached 4.843pc, up from 4.816pc yesterday.
That’s all for today here, but you can keep up to date with all our latest economics and business news here.
06:20 PM GMT
Rachel Reeves can run – but her fate is sealed
The Chancellor’s decision to fly to China while bond markets turn on Britain is symptomatic of a much larger problem, says Matthew Lynn:
The Chancellor will be in China this weekend.
05:31 PM GMT
FTSE 100 closes down in global sell-off
The FTSE dropped today, adding to a feeling of pessimism in London markets, as world stock indexes fell.
Global stock markets fell as investors reacted to stronger-than-expected employment figures from the US.
The number of jobs added by employers in the world’s largest economy last month soared past the expectations of analysts, according to official figures, which pointed to a strengthening labour market.
Richard Flax, chief investment officer at Moneyfarm, said: “The unexpectedly strong data from the US labour market in December, showing payrolls surging by 256,000 against a forecast of 164,000, has deepened a global bond sell-off and raised concerns about persistent inflationary pressures in the US.”
A US stronger jobs market suggests that interest rates will stay higher for longer.
Robert Pavlik, senior portfolio manager at Dakota Wealth, said: “The market was planning for lower interest rates which now seem to be off into the future, if at all this year.
“Now, with at least a stronger appearing economy keeping the Fed on hold for longer it just makes it a much more difficult environment for stocks, at least short term.”
The FTSE 100 dropped 0.9pc, while the FTSE 250, which contains more UK-focused companies such as Greggs and Currys, lost 1.4pc.
On Wall Street, the S&P 500 has dropped about 1.7pc, and the Dow Jones is down 1.7pc. The tech-heavy Nasdaq is down 2pc.
The downbeat mood was also felt in markets across Europe. In Paris, the Cac 40 closed 0.8pc lower, and in Frankfurt, the Dax was down 0.5pc.
05:02 PM GMT
Think tank urges U-turn on Budget
The Government should perform a U-turn on its economic policy, a think tank has said.
Eamonn Butler, director of the Adam Smith Institute, said: “Smart people and smart money are leaving the country. Businesses are closing the economy is as frozen as the weather.
“Borrowing costs have zoomed past those used by the suits to sink Liz Truss. Now foreign banks are telling everyone we’re in a doom loop and to sell the UK fast.
“It’s surely time to admit that higher spending and higher taxes are not the way to boost the Government’s much-vaunted growth and stability. They’re killing both, and fast.”
04:50 PM GMT
UK gilts at risk of ‘moron premium’, warns analyst
Traders could be starting to apply a “moron premium” on UK government debt, a City analyst has suggested.
Michael Hewson, formerly chief market analyst at CMC Markets, said that the Government’s decision to talk down the economy with claims of a £22bn black hole was “almost Ratneresque in its approach”.
The claims of a black hole “served to undermine both business and consumer confidence to such an extent that the economy slowed sharply in Q3, as it became apparent that the new administration was preparing the ground for a raft of new tax rises”.
Mr Hewson added: “The Government then undermined its own argument about this so-called ‘black hole’ by granting inflation busting pay awards to a host of public sector workers as well as announcing a raft of rather questionable green initiatives, including £22bn towards carbon capture.
“As a result of this approach any confidence that markets had that we were turning a page quickly evaporated as UK gilts yields started to edge higher again, even as the Bank of England started to cut interest rates”.
He said: “Now with UK gilt yields at multi year highs and prices close to multiyear lows, and the pound sliding on foreign exchange markets, the question being asked is whether gilts are good value at these prices, or is the so-called “moron premium” back with a vengeance?”
04:29 PM GMT
Barclays says ‘high chance’ Reeves will be forced to announce emergency measures
Barclays has said that there is a “high chance” that Rachel Reeves will be forced to announce emergency measures if bond yields stay high.
In a report issued this afternoon to clients, it said: “If, as looks likely at the moment, [the Office for Budget Responsibility forecast on Mar 26] shows the Chancellor has no headroom, then a spending review a few weeks or maybe even months later that contains no changes on tax and spend plans but rather just allocates money, and then an Autumn Budget even further out, could give the impression of a government that is not committed to fiscal responsibility.
“We think that without a change in the market pricing, there is a high chance that the Chancellor is forced to make fiscal adjustments sooner than that to deal with the gap.”
04:08 PM GMT
UK more vulnerable than other major countries to capital flight, says economist
The UK is more vulnerable to money flowing overseas than other major developed countries, an economist has said, as the pound continues to fall.
Paul Dales, chief UK economist at Capital Economics, said that the UK had been “hit harder than others mainly because of its reliance on overseas investors to fund its current account and government budget deficits”.
He added: “The UK’s ‘twin deficits’ are bigger than every other G7 economy, and the eurozone, except the US, which is seen as a safe haven as the dollar is the world’s reserve currency. So when global risk sentiment declines, the UK is more vulnerable to funds flowing to safer shores.
“It is always worrying when UK bond yields rise by more than yields elsewhere and the pound weakens. Normally, larger rises in UK yields would strengthen the pound. Even so, the current situation is nothing like the sterling crisis of 1976 or the Liz Truss episode in 2022 as has been suggested.
04:05 PM GMT
Reeves to be forced into ‘corrective measures’ to quell market turmoil
Rachel Reeves will be forced to increase taxes or cut public spending to ease the pain in the bond markets, according to economists.
Stefan Koopman of Rabobank said the rise in borrowing costs has “undercut” the Chancellor’s plans for the economy before they have had a chance to take hold, according to economists.
He said the rise in bond yields is “tightening the screws” on Ms Reeves’s ambitions set out in the Budget.
Although the rise in borrowing costs has been driven by global economic factors, he said the turmoil in Britain’s financial markets “underscores broader concerns”.
He said: “Politics is about managing perceptions – “vibes,” if you will – as much as meticulously crafting policy.”
He said that the Government’s efforts to fix “the UK’s long-term needs” had been “overshadowed by a litany of high-profile inefficiencies, inflationary public sector pay rises, and increased taxes on middle-class workers to fund triple-locked pensions and to pay for ever-increasing welfare and health spending”.
As a result, he expects Ms Reeves to take “corrective fiscal measures”, either through higher taxes or cuts in public spending.
“The primary safeguard against further instability should be credible fiscal policy,” he said.
Thanks for following today’s updates on the markets so far. At this point I’ll hand you over to Alex Singleton, who will keep you informed on what’s happening as the week’s trading comes to a close.
03:30 PM GMT
Britain ‘is going down big time’
Sir Keir Starmer and Rachel Reeves are a “real danger to the UK economy”, Telegraph readers have said in the wake of the turbulence in financial markets.
Below is a selection of views from the comments section of this blog and you can join the debate here:
03:07 PM GMT
Oil prices surge threatening fresh inflation blow
Inflation fears have been one of the main drivers of the turmoil in bond markets - and Rachel Reeves has been delivered more worrying news on price rises.
The price of oil has surged to its highest level since October as new US sanctions targeting Russian crude were reported by Reuters.
Brent has risen as much as 5pc today to more than $80 a barrel, while West Texas Intermediate has gained as much as 5.3pc towards $78.
02:49 PM GMT
Traders bet on only one rate cut this year
Money markets indicate that the Bank of England may only cut interest rates once this year amid the turmoil in bond markets.
Traders have cut their positions today after figures showing the American economy added more jobs than expected in December.
Earlier this week, two reductions in the Bank Rate were priced in by the end of the year, but traders are now less confident, with many economists suggesting the Federal Reserve may not cut interest rates in the US at all in 2025.
Thomas Ryan of Capital Economics said: “The odds have increased that the Fed is close to being finished with its loosening cycle, particularly if the incoming Trump administration pushes ahead with a stagflationary mix of tariffs and immigration curbs.”
02:36 PM GMT
Wall Street sinks as interest rates poised to stay higher
US stock markets dropped at the opening bell after stronger-than-expected American jobs figures led traders to bet that the Federal Reserve will keep interest rates at their present levels for longer.
The Dow Jones Industrial Average was down 0.7pc to 42,319.65 while the S&P 500 fell 0.4pc to 5,871.33.
The tech-heavy Nasdaq Composite sank 1pc to 19,294.41 as the sell-off in bond markets deepened, pushing borrowing costs higher.
Matthew Ryan of Ebury said: “We think that today’s report all but guarantees that the Federal Reserve won’t even consider lowering interest rates again until at least June, and it is far from inconceivable that we see no US rate cuts at all during the entirety of 2025.
“Bond markets globally have continued to sell-off on the news, in what is beginning to constitute a significant worry for borrowers, while also raising the risk of a slowdown in global economic activity this year.”
02:06 PM GMT
Pound slumps as borrowing costs soar
The pound has slumped to a fresh 14-month low amid the latest jump in UK borrowing costs.
Sterling was down 0.7pc to $1.222 - its lowest since November 2023 - after figures showed the US economy added more jobs than expected.
The stronger-than-expected US labour data has sent US bond yields higher, boosting the dollar against global currencies.
Seema Shah of Principal Asset Management said: “The important payroll beat will be good news for the US economy and the US dollar, unwelcome news for equities as they seek interest rate relief, and punishing news for global bond markets, particularly UK gilts.
“US labour market strength is clearly a continuing theme and suggests that the economy continues to thrive.
“The Fed can be very comfortable staying put in January and will need some meaningful downside inflation surprises or reversals in upcoming jobs reports to wake them from rate slumber in March.
“For global bonds, the strength of the US jobs report just adds to their challenges. The peak for yields has not yet been reached, suggesting additional stresses that several markets, especially the UK, can ill afford.”
01:58 PM GMT
US long-term borrowing costs hit one-year high
The cost of long-term government borrowing in the US has risen to its highest level since November 2023 after America added more jobs than expected.
The 30-year Treasury yield has climbed above 5pc, putting pressure on bond markets around the world.
01:47 PM GMT
Traders slash bets on US interest rate cuts
Traders now expect the Federal Reserve will push back its next interest rate cut in the face of rising US employment and potentially inflationary policies from Donald Trump.
Money markets have priced in the next interest rate cut to happen by October, compared to bets on Thursday that it would happen by June.
It comes after US non-farm payrolls data were stronger than expected in December, with America adding 256,000 jobs last month compared to estimates for 165,000.
01:40 PM GMT
UK borrowing costs rise after US jobs blow
The cost of government borrowing is rising back towards its 2008 high after figures showed stronger-than-expected growth in the US jobs market.
The yield on 10-year UK gilts climbed seven basis points to 4.88pc following the data, which revealed the American economy added 256,000 jobs last month.
The signs of strength in the US economy reduce the chances of the Federal Reserve cutting interest rates this year.
This has led to a rise in Treasury bond yields that has pushed global government borrowing costs higher.
Richard Carter of wealth manager Quilter Cheviot said: “In disappointing news for Chancellor Rachel Reeves, the bond market sell-off could continue following strong data out of the US today.”
He added: “Donald Trump’s imminent inauguration and his potentially inflationary agenda of tariffs, immigration controls and personal and corporate tax cuts will likely see the Fed pause for thought at its next couple of meetings.”
01:30 PM GMT
US economy adds more jobs than expected
The US economy added more jobs than expected last month, official figures show, in a signal that the rise in government borrowing costs will continue.
Non-farm payrolls increased by 256,000 in December, according to the Labor Department, which was ahead of expectations for 165,000 jobs.
It compared to 212,000 jobs being added in November.
01:06 PM GMT
Bond yields edge higher ahead of US jobs figures
Investors will be watching the bond markets closely over the next hour as the US releases its latest employment data.
The yield on 10-year UK gilts was up two basis points to 4.83pc before the Labor Department’s non-farm payrolls report, with a higher than expected figure likely to fuel further the surge in government borrowing costs.
The gilt rout which has raised doubts about the viability of the Rachel Reeves’s spending plans has been driven by a wider sell-off in government bonds across the globe.
US president-elect Donald Trump could introduce a tariff policy which would be inflationary for many international economies, potentially forcing central banks to keep interest rates higher.
The bond sales are also been linked to worries over rising UK government borrowing and the mounting threat of so-called stagflation, where inflation is high but economic growth is low.
ING senior European rates strategist Michiel Tukker said the rise “can partly be attributed to fiscal concerns, but should be framed against significantly higher rates in both the US and eurozone”.
He added: “What markets may be underestimating is how higher rates also pass through to growth and inflation by tightening financial conditions.”
He said the Bank of England is now priced to cut rates by just 0.5 percentage points this year, leaving the base rate at 4.25pc.
Mr Tukker added: “And the increase further out on the curve will hurt investment activity through lending rates.
“Lower growth and inflation should help bring rates down eventually, thereby capping the upward potential for gilt yields from here in our view.”
12:27 PM GMT
Sell the pound, says Deutsche Bank, as Reeves lands in China
Investors have been told to sell the pound as analysts brace for a slowdown in Britain’s economy following the sell-off in bond markets.
Deutsche Bank said sterling had made a “concerning” decline this week despite surging yields in bonds, which would usually act as a support for the currency.
Analysts warned that the rise in bond yields has come as figures show a slowdown in the UK economy, with recent PMI data showing “another sharp drop in business employment expectations” which could encourage the Bank of England to cut interest rates.
Strategist Shreyas Gopal said: “We think there’s further to go in the recent pound weakness.”
The warning about the value of the pound comes as sterling is on track to decline nearly 1pc this week.
Mr Gopal also pointed to falling export orders, which also “increases the need for sterling to weaken” to attract buyers for UK goods and services.
Chancellor Rachel Reeves has arrived in China on a trip designed to boost trade relations.
11:52 AM GMT
Rachel Reeves lands in China
The Chancellor has landed in China on her trade trip with the Governor of the Bank of England designed to improve relations with the world’s second largest economy.
The Treasury confirmed that Rachel Reeves landed in Beijing earlier this morning.
11:40 AM GMT
Reeves risks breaking promises on tax rises, says former Bank of England official
Rachel Reeves risks being forced to break Labour’s manifesto promise not to raise taxes on working people if the sell-off in bond markets deepens, a former Bank of England rate-setter has warned.
Martin Weale, who was a member of the Monetary Policy Committee from 2010 to 2016, said he could see “some circumstances in which they will have to eat their words” after the Chancellor said in November that she would not be “coming back with more borrowing or more taxes”.
Labour said in its manifesto it would not raise taxes on working people but instead announced a £25bn hike in employer National Insurance contributions.
Should “interest rates rise considerably further,” Mr Weale said Ms Reeves would be left with little option but to target VAT or income tax to keep to her “non-negotiable” fiscal rules.
He said the next test of UK markets may come this afternoon when the US releases its latest jobs report.
He told Bloomberg Radio: “If rates look like staying higher this afternoon after the jobs report we may see a further increase in UK yields.”
However, he said the rise in borrowing costs so far have been fairly small and it was “perfectly responsible” for the chancellor to go ahead with her trip to China this weekend.
He said. “I don’t get a sense of a market panic. It’s more an issue that is going to be addressed but doesn’t need to be addressed on Monday.”
11:07 AM GMT
Reeves not seen publicly since IoD meeting
Rachel Reeves has not been seen publicly since she held a breakfast meeting with the Institute of Directors (IoD) on Thursday morning.
The Chancellor did not appear in the Commons hours later to field an urgent question from shadow chancellor Mel Stride on the turmoil in Britain’s financial markets.
She has since taken a flight to China on a long-planned trade trip, despite calls for her to remain in the UK to address the surge in government borrowing costs.
10:57 AM GMT
Mortgage costs to jump amid market turmoil, says Goldman Sachs
Mortgage costs are poised to rise amid the recent surge in the Government’s borrowing costs which have squeezed the Chancellor’s Budget headroom, Goldman Sachs has indicated.
The upheaval in bond markets, which saw benchmark yields rise to their highest level since 2008, in turn influences interest rates across the whole market, pushing up costs for mortgage borrowers.
Five-year Sonia swap rates - the mechanism used by markets to determine mortgage costs - have risen from about 3.4pc in September to more than 4.2pc today.
Ms Reeves set out new borrowing rules in October alongside a record-breaking £40bn wave of tax rises.
But she increased spending by even more, leaving herself with just £9.9bn of headroom to hit her targets - far less than the £28bn average wriggle room which Chancellors have given themselves in the past.
James Moberly of Goldman Sachs said the rise in rates in markets has eroded all of that space, adding £12bn to the Government’s anticipated debt interest payments in 2029, the target year under the fiscal rules.
He said: “The rise in yields to date leaves the Government with marginally negative fiscal headroom against its deficit rule.
“Any further rise in yields and any OBR growth downgrade on March 26 from here would push headroom further into negative territory.
“The government does not necessarily need to act in response to the March 26th OBR update even if it shows slightly negative headroom.
“But we believe that a continued sell-off in gilt yields would raise pressure for the government to implement corrective fiscal action in March, rather than waiting for the Autumn Budget.”
10:35 AM GMT
Labour will lose next election if Reeves returns to austerity, says former Bank economist
Labour will lose the next election if the rise government borrowing costs forces Rachel Reeves to return to austerity, a former Bank of England economist has warned.
Erik Britton, a former Bank of England economist who now runs Fathom Consulting, said the Chancellor’s spending plans had been put at risk by the rise in bond yields, which has squeezed the £10bn of headroom left in the Budget.
Mr Britton told Bloomberg: “The risk now is that they get blown irrevocably off course because they’ve lost control of the fiscal position, and get forced into austerity and tax rises.
“They could survive a couple of years but that would be the end. They’d be trounced at the next election.”
10:29 AM GMT
‘Growth to plunge’ as Reeves heads to China
Rachel Reeves’s surging borrowing costs will drive up interest rates on mortgages and business loans, hitting the economy and further undermining the public finances, economists at Goldman Sachs have warned.
James Moberly at the investment bank said the UK economy will now grow by only 0.9pc this year, less than half the 2pc predicted by the Office for Budget Responsibility at the time of the Budget in October, with higher interest rates in financial markets worsening the situation.
“We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment, with the increase of the last few days worth around 0.1 percentage point of additional growth drag this year,” he said.
The warning comes as the Government’s 10-year borrowing costs in bond markets hit the highest level since 2008, amid fears over the scale of the Chancellor’s borrowing plans.
Ms Reeves has decided to press ahead with a trade trip to China despite calls for her to remain in Britain while markets are in flux.
Mr Moberly said: “The rise in UK long-term yields in recent days is not driven by shifts in UK growth expectations or monetary policy, but primarily by concerns around the UK fiscal outlook.”
10:16 AM GMT
‘Sluggish growth’ and huge deficit behind surge in UK borrowing costs, says Deutsche Bank
Britain has led the sell-off in bond markets around the world as a result of its “sluggish growth” combined with its huge budget deficit, according to Deutsche Bank.
Analyst Jim Reid said the UK’s deficit was the second-largest in the G7, only behind the US, “who have the benefit of the world’s reserve currency”.
He said: “So the UK is reliant on overseas investors, with around 30pc of gilts held abroad.
“On top of that, the combination of sluggish growth and above-target inflation are adding to investors’ nerves, and the current pattern of market moves (with yields up and sterling down) is reminiscent of previous episodes of turmoil.
“So that’s drawn parallels to periods like the 2022 LDI crisis when Liz Truss was PM, along with the sterling crisis of 1976 that culminated in an IMF bailout.
“Nevertheless, the size of the moves are nowhere near the scale of what happened in 2022, when the 10yr gilt yield moved up by more than 100bps in the three sessions after the mini-budget took place.”
10:01 AM GMT
Bonds hit ahead of US jobs figures
UK stocks and bonds were under pressure ahead of the US jobs report later that could exacerbate the sell-off.
The FTSE 100 was down 0.2pc and the 10-year gilt yield was up four basis points to 4.85pc in the run up to the closely watched US nonfarm payrolls figures.
The data are forecast to show a rise of 165,000 American jobs in December, with unemployment expected to hold at 4.2pc.
Anything stronger could see 10-year Treasury bond yields spike to 13-month peaks and lift the US dollar in the process.
This would also likely drive a surge in UK borrowing costs and a deeper slump in the pound.
Analysts at ING believe a result below 150,000 new jobs would be needed to stop Treasury yields from rising further.
Padhraic Garvey said: “Payrolls, as always, are a pivotal report. But we need to deviate materially from consensus to have an effect this time around.
“Given the move already in Treasuries, there is some talk that Friday’s numbers will need to be strong to continue this momentum, and in that sense there is some vulnerability for a lower yield reaction to a consensus outcome.”
09:44 AM GMT
Market turmoil poised to drive up mortgage rates
Around 700,000 households in Britain face a jump in their mortgage costs this year as the turbulence in financial markets pushes borrowing costs higher.
Sonia swaps – the main pricing mechanism for five-year fixed rate mortgages – have surged from about 3.4pc in September to more than 4.2pc this week amid the rise in bond yields.
The latest jump comes as the cost of long-term government borrowing rose to its highest level since 1998 this week.
The incoming mortgage blow comes after 2.4m households were forced to remortgage on higher rates over the last two years, according to figures from Savills, following the surge in inflation that pushed the Bank of England to raise borrowing costs.
However, about 342,000 borrowers on two-year fixed deals are expected to see a fall in their mortgage rates when their agreements come to an end this year.
09:23 AM GMT
UK stocks face ‘a lot of pressure’ from rising borrowing costs
The FTSE 250 will come under “a lot of pressure” from the surge in borrowing costs, analysts have warned.
The index of midcap companies, which has a greater concentration of UK-focused stocks, is on track to suffer its worst weekly fall since October 2023 as investors pull cash from British assets.
The FTSE 250, which has plunged by 2.9pc so far this week, was last down 0.2pc today amid a surge in bond yields which could force the Bank of England to keep interest rates higher for longer.
Aneeka Gupta, director of macroeconomic research at WisdomTree, said: “UK mid-caps could come under a lot of pressure with rates rising this much.
“Of the three major central banks, the Bank of England is in the toughest position. It has to balance anaemic growth along with wages that are still strong.
“That doesn’t allow them to cut rates as much as the ECB could. So there’s less likelihood of a tailwind from rates coming down.”
08:57 AM GMT
UK borrowing costs rise in early trading
Yields on government bonds remain higher following a week of volatility.
The yield on a 10-year gilt - a benchmark for the cost of government borrowing - has to 4.83pc in early trading, up more than two basis points compared to Thursday’s closing price.
Meanwhile, yields on 30-year gilts - which hit their highest level since 1998 this week - have reached 5.39pc, up nearly two basis points.
The rise in gilt yields has an inverse effect on the price of government bonds, which have fallen in recent days as a result, increasing the cost of borrowing.
The pound was last down 0.2pc against the dollar at $1.229. Sterling was 0.2pc lower against the euro, which is worth 83.9p.
08:41 AM GMT
Market turmoil ‘substantially worse’ after Reeves’s Budget, says shadow minister
Rachel Reeves has been accused of making choices in the Budget which “harmed growth” as upheaval in the financial markets raise questions about her ability to meet her fiscal rules.
Shadow business minister Dame Harriet Baldwin said the Chancellor had made things “substantially worse” for Britain’s economy with her decision to push ahead with an extra £350bn of public spending over the next five years, funded by £200bn of additional taxes and another £150bn of borrowing.
Ms Reeves’s £10bn of headroom in the Budget has been squeezed by a surge in government borrowing costs this week.
Dame Harriet pointed to “anaemic growth” in the economy over the last two quarters, with analysts suggesting the Chancellor would have to fill any funding gap with either more taxes or cuts to public spending.
Dame Harriet told Sky News: “In the first half of last year the UK economy was actually growing the fastest in the G7, so it was showing some very promising signs in the first half of last year.
“Unfortunately what happened after the election was that by talking very negatively about the UK economy and then by implementing this massive Budget, which has huge implications in terms of taxes on businesses which create the growth in the country, the Chancellor seems to have stalled that economic recovery.
“The reality is that the choices that the Chancellor took in her Budget have made things substantially worse than the global picture for the UK.
“That’s why we were keen for her to come yesterday to justify her Budget and also to talk about how she’s going to generate the growth in the UK economy that we all want to see.”
08:16 AM GMT
UK stocks slump as Reeves flies to China
Stock markets fell at the open in London with the Chancellor on her way to China amid wider turmoil in financial markets.
The FTSE 100 fell 0.1pc to 8,311.29 while the domestically-focused FTSE 250 edged sightly lower to 20,000.99.
The midcap FTSE 250 index is down 2.8pc so far this week, putting it on track for its worst performance since September.
08:11 AM GMT
Gilts slump ahead of US jobs figures
The cost of government borrowing has risen higher at the start of trading on bond markets as investors prepare for crucial US jobs figures.
The yield on 10-year UK gilts rose by three basis points to 4.84pc, having this week hit their highest level since the global financial crisis in 2008.
The bond market will come into focus later today when the US releases its latest employment figures, which could impact the outlook for interest rates around the world.
Kathleen Brooks, research director at XTB, said: “A strong report could add to the selling pressure on global bonds, and markets may be more sensitive than usual to any upside pressure in US Treasury yields.
“UK bonds have been moving closely with US Treasuries in recent months, so a strong payrolls report could add to the selling pressure on UK bonds and increase fears of a fiscal crisis in the UK.
“It could also weigh on the pound, which has been one of the weakest performers in the FX market since the start of this year.”
08:02 AM GMT
We need to make sure UK economy remains competitive, says Nandy
Asked if the Chancellor had made the right call in not cancelling her visit to China, Culture Secretary Lisa Nandy told Sky News: “Absolutely it was.”
She added: “China is the second largest economy, and what China does has the biggest impact on people from Stockton to Sunderland, right across the UK, and it’s absolutely essential that we have a relationship with them.
“We need to make sure that the UK economy remains competitive, we need to challenge where we must, including in the area of human rights, but we also need to make sure that we are working with China on those areas of shared interest.”
08:01 AM GMT
Reeves ‘right to go to China’ as pound slumps again
A Cabinet minister has defended Rachel Reeves’s decision to fly to China during the turbulence in financial markets despite a fresh slump in the pound.
Culture Secretary Lisa Nandy said it was “absolutely” the right decision for the Chancellor to continue with her trade trip to the world’s second largest economy alongside the Governor of the Bank of England Andrew Bailey.
The trip by Ms Reeves, who Ms Nandy said is “relentless in her pursuit of growth”, comes as the pound fell again by as much as 0.3pc overnight, having earlier hit its lowest level since November 2023.
Analysts have raised concerns that the drop in the currency comes at the same time as a rise in government borrowing costs, indicating that investors are unsure that the Chancellor will be able to meet her fiscal rules.
Ms Nandy said there is no need to be worried about the rise in borrowing costs, which saw the yield on 30-year UK bonds surge to their highest level since 1998 this week.
Asked about the UK’s shaky financial markets, the Culture Secretary told Sky News: “I don’t think we should be worried.
“It’s obviously something we take very seriously, but these are global trends that have affected many countries, most notably the United States, as well as the UK.
“We are still on track to be the fastest growing economy, according to the OECD in Europe.”
Ms Nandy said the Government’s self-imposed tax and spend rules are “non-negotiable”.
“We’re not going to borrow for day-to-day spending,” she added.
07:53 AM GMT
Good morning
Thanks for joining me. Rachel Reeves was “absolutely” right to fly to China for a trade trip, a Cabinet minister has said, despite the upheaval in financial markets that has seen the pound slump again overnight.
Culture Secretary Lisa Nandy said households should not be worried about the rise in government borrowing costs that has raised concerns about the Chancellor’s ability to meet her fiscal rules.
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Net zero is driving up energy prices, admits Bank of England official | Sarah Breeden says carbon permits had a bigger impact on inflation than other market shocks
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The traders making millions by gaming Britain’s power crunch | Gas-fired power stations can boost profits at the ‘gasino’ by betting on renewables’ volatility
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EU fines itself for accidentally breaching its own data rules | Court orders European Union to pay €400 to German after failing to comply with GDPR regime
What happened overnight
Shares fell in Asia overnight. In Tokyo, the Nikkei 225 index lost 1.1pc to 39,190.40, while South Korea’s Kospi shed 0.2pc to 2,515.78.
Chinese markets extended losses, with the Hang Seng in Hong Kong down 0.9pc at 19,062.38. The Shanghai Composite index fell 1.3pc, to 3,168.52.
In Australia, the S&P/ASX 200 gave up 0.4pc to 8,294.10.
Bangkok’s SET slipped 0.1pc, while the Sensex in India rose 0.1%. Taiwan’s Taiex slipped 0.3pc higher.
US markets were closed on Thursday to mark the funeral of former president Jimmy Carter.