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Stock markets on Wall Street have plunged after new figures showed Americans are fearful that Donald Trump’s trade war will stoke inflation.
US consumers now expect inflation to climb to the highest level for more than 30 years, with price rises expected to average 4.1pc a year over the next five to 10 years.
The inflation expectations, from a University of Michigan survey, are now at the highest level since February 1993.
In the short term, consumers expect even higher inflation with prices rising 5pc over the next year amid Donald Trump’s escalating trade war.
It is a setback for American companies hoping for interest rate cuts and raises the prospect that families may put off spending to guard against future price rises.
The S&P 500 fell 1.8pc, the tech-heavy Nasdaq lost 2.5pc and the Dow Jones dropped 1.5pc in the wake of the data’s publication.
Joanne Hsu, director of the survey, said: “Consumers continue to worry about the potential for pain amid ongoing economic policy developments. Notably, two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.”
Jerome Powell, chairman of the US Federal Reserve, acknowledged last week that inflation had started to rise “partly in response to tariffs”, adding that “there may be a delay in further progress over the course of this year”.
But he also said that he considered the Michigan data to be “an outlier” that the Fed takes note of. “We don’t dismiss data that we don’t like. We force ourselves to look at it,” he said.
It came on the day official data showed that America’s core inflation, which strips out volatile food and energy costs, rose more than expected at 2.8pc in February, compared with a year earlier, up from 2.6pc the month before.
Read the latest updates below.
06:13 PM GMT
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05:50 PM GMT
Germany: ‘there are only losers’ in a trade war
Germany’s finance minister Joerg Kukies has warned that US tariffs would hit both the German and the American economies and that Berlin was working to prevent an escalating trade war.
Mr Kukies was speaking after meeting his US counterpart, Treasury secretary Scott Bessent, and other members of the Trump administration in Washington.
He said: “Higher tariffs will hit German car manufacturers and the entire German economy particularly hard. But they will also harm the US economy, because they will make imports more expensive and increase prices for consumers in the US.”
He added: “At the European level, we will continue to work on measures to protect our own economy. However, it is also clear that there are only losers in a trade conflict.”
05:44 PM GMT
Trump: Americans shouldn’t race to avoid car tariffs
Donald Trump said on Friday that he did not think it made sense for Americans to buy cars now to avoid the effects of tariffs that are set to go into effect in early April.
“I don’t think so,” Mr Trump told reporters at the White House, when asked if Americans should speed up car purchases. “I think you’re going to have a country that’s going to boom.”
05:35 PM GMT
Trump’s car tariffs more aggressive than expected, says US banking giant
Global stock markets have fallen today, with MSCI’s gauge of world stocks dropping 1.7pc.
Michael Metcalfe, head of global macro strategy at US bank State Street said that US car tariffs had been more aggressive than expected.
He said: “What I don’t know is whether the hawkishness of the auto tariffs is going to translate to the broader tariffs that we are going to get next week. And that is keeping risk appetite on the back foot.”
Gold prices meanwhile set yet another new peak of $3,086.82 as the threat of trade wars drives a rush towards the safe-haven metal. It is currently up this afternoon by 0.9pc at $3,081.56 an ounce.
For the quarter it is now up more than 17pc, which is its best quarterly performance since 1986.
05:28 PM GMT
Anmericans ‘aren’t in a good place’ to absorb Trump tariff hikes
American householders are in a bad position to be able to absorb the costs of Donald Trump’s tariff war, an economist has warned.
Brian Jacobsen, chief economist at Annex Wealth Management, said: “Households aren’t in a good place to absorb a little tariff pain. The Fed isn’t likely to run to the rescue either as inflation moved up more than expected in February.”
A report released this afternoon showed that an underlying measure of how much income Americans are making, which excludes government social benefits and some other items, “has been treading water for the last three months,” said Mr Jacobsen added.
The Fed has been keeping its main interest rate on hold this year after cutting it sharply in late 2024, in part because of worries about inflation remaining higher than its 2pc target. While more cuts to interest rates would give the economy and financial markets a boost, they would also put upward pressure on inflation.
04:54 PM GMT
FTSE closes down despite retail sales cheer
UK shares were subdued today as investors avoided big bets as investors awaited more details of Donald Trump’s plans for tariffs.
The FTSE 100 closed down 0.1pc, while the FTSE 250 lost 0.3pc.
London shares were relatively unscathed after official figures were released showing that retail sales volumes jumped by 1pc in February to hit their highest level since July 2022.
On the continent, Germany’s Dax lost 1pc and France’s Cac 40 fell 0.9pc.
04:43 PM GMT
Economist lionised by Trump says car tariffs could harm American producers
A high-profile economist praised by Donald Trump has warned that the US president’s 25pc tariffs on auto imports could damage American producers and add $4,711 to the cost of a vehicle.
In a 21-page analysis, Arthur Laffer, who received the Presidential Medal of Freedom in 2019 from Mr Trump, said the auto industry would be in a better position if the president preserved existing supply chain rules with Canada and Mexico from his own 2019 trade pact.
The White House has temporarily exempted auto and parts imports under the United States-Mexico-Canada Agreement (USMCA) from the tariffs starting on April 3. This is so that the Trump administration can put together a process for taxing non-US content in vehicles and parts that fall under the agreement.
“Without this exemption, the proposed tariff risks causing irreparable damage to the industry, contradicting the administration’s goals of strengthening US manufacturing and economic stability,” Mr Laffer wrote in the analysis.
“A 25pc tariff would not only shrink, or possibly eliminate, profit margins for US manufacturers but also weaken their ability to compete with international rivals.”
In an interview with the Associated Press, Mr Laffer said the report had caused a “kerfuffle” and cautioned that it only applied to the economics, rather than Trump’s negotiating skills and strategic approach to trade.
The economist was quick to also praise Trump as a negotiator who has deep knowledge of trade issues, indicating that the tariff threats could be used as they had during Trump’s first term to ultimately lower barriers to trade and improve outcomes for the US economy.
04:13 PM GMT
EU plots 11th-hour concessions to appease Trump
Brussels is considering last-minute concessions to Donald Trump in a bid to negate the damage of looming tariffs expected next week.
The European Commission has begun drawing up terms for a potential agreement setting out areas for negotiation with the Trump administration ahead of its so-called “Liberation Day” next week, when the US will impose punitive tariffs on global trade partners.
Bloomberg said the EU was identifying concessions it could make to the US president. The bloc’s exports have already been hit by tariffs that are set to increase. Officials are said to have been told there is no way to avoid the tariffs.
It comes after Mr Trump sent car manufacturers reeling after he announced he would hit the global car industry with tariffs worth $100bn, dealing a sharp blow to Europe and the UK, which is a major exporter of cars to the US.
The European Commission is said to be looking at areas for negotiation including lowering its own duties, mutual investments with the US, alongside the potential loosening of some regulations and standards.
Since taking office in January, Mr Trump has rattled the global economy by imposing tariffs on trading partners and longstanding allies such as Canada, Mexico and Europe.
Speaking about the imposition of car tariffs on Wednesday, he said: “We’re going to charge countries for doing business in our country and taking our jobs, taking our wealth, taking a lot of things that they’ve been taking over the years.”
Any deal with the EU would have to be approved by the president and would likely come about in the wake of “Liberation Day” during talks between the bloc and the US, it was reported.
The US has not said exactly what level of tariffs the EU will be hit with, but officials are said to be expecting the rate to fall between 10pc and 25pc.
It comes after European Commission president Ursula von der Leyen’s head of cabinet and Maros Sefcovic, the EU’s trade chief, met with US officials this week to discuss the situation.
04:05 PM GMT
Trump hails ‘extremely productive call’ with Carney
Donald Trump has said he had an “extremely productive call” with Canadian prime minister Mark Carney amid increased tensions between the neighbouring countries.
Relations have deteriorated between the US and Canada after Mr Trump began a tariff war and repeatedly spoke of making it the 51st US state.
04:00 PM GMT
Stock markets sink as Trump tariffs trigger price rise fears
Stock markets on Wall Street have plunged after new figures showed Americans are fearful that Donald Trump’s trade war will stoke inflation.
US consumers now expect inflation to climb to the highest level for more than 30 years, with price rises expected to average 4.1pc a year over the next five to 10 years.
The inflation expectations, from a University of Michigan survey, are now at the highest level since February 1993.
In the short term, consumers expect even higher inflation with prices rising 5pc over the next year amid Donald Trump’s escalating trade war.
It is a setback for American companies hoping for interest rate cuts and raises the prospect that families may put off spending to guard against future price rises.
The S&P 500 fell 1.3pc, the tech-heavy Nasdaq lost 2pc and the Dow Jones dropped 1.4pc in the wake of the data’s publication.
Joanne Hsu, director of the survey, said: “Consumers continue to worry about the potential for pain amid ongoing economic policy developments. Notably, two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.”
Jerome Powell, chairman of the US Federal Reserve, acknowledged last week that inflation had started to rise “partly in response to tariffs”, adding that “there may be a delay in further progress over the course of this year”.
But he also said that he considered the Michigan data to be “an outlier” that the Fed takes note of. “We don’t dismiss data that we don’t like. We force ourselves to look at it,” he said.
It came on the day official data showed that America’s core inflation, which strips out volatile food and energy costs, rose more than expected at 2.8pc in February, compared with a year earlier, up from 2.6pc the month before.
03:55 PM GMT
Oil drops on worries tariff war will curb demand
The price of a barrel of oil fell today as traders worried that Donald Trump’s escalating trade war will cut demand.
Brent Crude fell 1pc to $72.61 today days before Mr Trump imposes “reciprocal” tariffs on global imports. Earlier this week, Mr Trump announced fresh tariffs on imported cars.
Dennis Kissler, at BOK Financial Securities, said: “US stocks are struggling, and longer-term demand fears are on the minds of most traders as tariffs begin to kick in on cars not manufactured in the US.”
03:08 PM GMT
Stock markets fall as traders brace for next Trump tariffs
Stock markets fell on Friday as US inflation figures added to concerns over the next steps in Donald Trump’s trade war.
Shares in automakers fell further as they brace for a 25pc levy due to kick in early next week along with a raft of “reciprocal” tariffs tailored to different countries.
The market mood has soured over fears that Trump’s tactics will trigger tit-for-tat tariffs that would rekindle inflation, which could put the brakes on interest rate cuts and spark a recession.
David Morrison, an analyst at Trade Nation, said: “Investors remain nervous over the economic repercussions from President Trump’s tariff threats, just days before he unleashes his ‘reciprocal tariffs’.”
Wall Street opened in the red after official data showed the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index, remained unchanged last month at 2.5pc.
But another key figure, core inflation, which strips out volatile food and energy costs, rose more than expected at 2.8pc in February on an annual basis, up from 2.6pc the month before.
A tit-for-tat trade war and a reignition of inflation that could force the Fed and other central banks to rethink plans to cut interest rates.
Bret Kenwell, US investment analyst at eToro, said: “The [inflation] report isn’t devastating, but given the current economic uncertainty and market volatility, investors were looking for reassurance in this report - not something to fan the flames.”
The S&P 500 is down 1.6pc, the Nasdaq down by 2.2pc and the Dow Jones is down by 1.3pc.
In Europe, Germany’s Dax lost 1.2pc and France’s Cac 40 lost 1.1pc. Britain’s FTSE 100 dropped 0.3pc and the FTSE 250 lost 0.4pc.
02:54 PM GMT
Dollar slips as traders wait for Trump’s tariffs announcement
The dollar has weakened today ahead of a planned announcement next week by US president Donald Trump on reciprocal tariffs, which has left traders uncertain of how to trade the currency.
Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, said: “The one word that I keep hearing over and over from clients, and on earnings calls and things, is uncertainty. And you hear this from the central bankers as well.
“The one thing we do know is that on April 2, we’re going to get reciprocal tariffs. We don’t know exactly what that means.”
Traders have had bouts of optimism that the trade levies will not be as severe as feared, but concerns remain that they will dent economic growth and reignite inflation.
Mr Trump on Wednesday announced a 25pc tariff on imported cars and light trucks starting on April 3.
Mohit Kumar, an economist at investment bank Jefferies, said: “Trump tariff uncertainty is driving markets, with investors waiting for the April 2 details. We ... think that the initial announcement would open the door for further negotiations and the final impact of tariffs would not be as bad as feared.”
The US Dollar Index, which measures the value of the dollar with a basket of rival currencies, was down 0.3pc at 104.05 this afternoon. The dollar is roughly flat against he pound today.
02:43 PM GMT
American consumer spending remains weak amid rising prices
US consumer spending remained weak last month amid rising prices for goods and services, amplifying fears of high inflation.
A report from the US Commerce Department this afternoon showed underlying price pressures increasing by the most in 13 months.
According to the personal consumption expenditures (PCE) measure, US prices in February were 2.5pc higher than a year earlier.. Excluding food and energy, the PCE price index increased 2.8pc in a year.
Consumer spending, which accounts for more than two-thirds of economic activity, climbed 0.4pc last month after a 0.3pc decline in January.
Economists polled by Reuters had forecast consumer spending gaining 0.5pc.
“Inflation too hot and spending too cold,” said Stephen Brown, of Capital Economics. “The Fed is unlikely to cut interest rates this year.”
Jerome Powell, chairman of the US Federal Reserve, acknowledged last week that inflation had started to rise “partly in response to tariffs”, adding that “there may be a delay in further progress over the course of this year”.
Kathy Bostjancic, chief economist at US insurer Nationwide, said: “The data support our view that downside risks to the economy are emerging, but with inflation heating up, the Fed for now will maintain its wait-and-see approach.”
02:25 PM GMT
China will impose countermeasures against new Trump tariffs, state media says
China will take countermeasures if the US harms its interests with tariffs, a social media account affiliated with Chinese state broadcaster CCTV said on Friday.
If the US wants to discuss cooperation with China, mutual respect is a prerequisite, the account Yuyuan Tantian said in a post on Weibo.
The comments came after China’s economy tsar He Lifeng and the US Trade Representative Jamieson Greer held “candid talks” on trade in a video call on Wednesday.
During the call, Mr He expressed China’s “solemn concerns” over existing and proposed US tariffs and urged Washington to resolve both sides’ concerns, according to China’s official Xinhua news agency.
Following the meeting, Donald Trump told reporters he would be willing to reduce tariffs on China to get a deal done with TikTok’s Chinese parent ByteDance to sell the short video app used by 170m Americans.
Mr Trump is set to unveil his “reciprocal” tariffs on April 2, potentially hitting Chinese goods with additional duties.
02:05 PM GMT
Trump tariff chaos ‘could knock £2 trillion off global economy’
Uncertainty caused by Donald Trump’s tariffs could put a £2 trillion dent in the global economy by 2028, economists have said.
Oxford Economics said that continuing uncertainty around trade policy risks “spilling over” and depressing consumer sentiment and financial markets.
Dr Daniel Harenberg and economist Kiki Sondh said in a statement:
“This could amplify the economic damages substantially. The recent US stock market correction appears to have been partially triggered by investors realising that Trump may follow through with his tariff threats and that this will hurt the US economy. Similarly, consumer sentiment has weakened due to tariff-induced inflation fears.”
01:58 PM GMT
Four million workers to be dragged into higher tax brackets
Four million more people will be paying higher rates of income tax as a result of a stealth raid on wages.
Our economics editor Szu Ping Chan has the latest:
The Office for Budget Responsibility (OBR) estimated that 4.1m extra people will be dragged into paying the 40p or 45p rate of tax by 2027-28, when a six-year freeze on income tax thresholds is scheduled to end.
12:44 PM GMT
‘Cocktail of costs’ risks job losses and store closures
More warnings over the coming storm for retailers in April, this time from Nicholas Found of Retail Economics. He said:
“Consumer confidence is fragile, the cost-of-living continues to dominate household concerns, and retailers are bracing for a wave of rising operating costs from April.
12:34 PM GMT
What you’re saying
12:11 PM GMT
Uncertainty persists for high street retail despite stronger sales
Here’s Erin Brookes, European retail and consumer Lead at Alvarez & Marsal, reacting to February’s unexpected rise in retail sales.
“Strong sales have not taken the sting out of the upcoming policy changes, with retailers footing the bill for minimum wage and National Insurance contribution increases. In addition, the Spring Statement did little to ease these pressures, with uncertainty around business rates persisting.
12:03 PM GMT
Trump car tariffs ‘here to stay’
British car manufacturers are still reeling from the news that they face 25pc tariffs on car imports into the US from next week.
Cars - particularly luxury vehicles - are one of Britain’s largest exports to the US, with brands such as Jaguar and Aston Martin accounting for £6.4bn in sales as of 2023.
Mohit Kumar at investment bank Jefferies said:
“A number of clients have asked if yesterday tariff announcement on Autos are likely to stay or could be scaled back like previous episodes. Unfortunately we think that the Auto tariffs are here to stay. There would be exceptions as companies bring back production or assembly back to the US, but those exceptions are likely on a case by case basis.
11:49 AM GMT
‘Cloud of uncertainty’ looms over economy
Here’s Morgan Stanley’s Bruna Skarica, who predicts the Bank of England will be able to cut rates in May.
“Inflation data were softer than expected, PMIs and retail sales beat. Fiscal headroom has been restored. Yet, the cloud of uncertainty looms over the UK economy. Despite all the data noise, growth is holding up a bit better than we had expected. But the focus now turns to global downside risks. We continue to see the most plausible pathways for US tariffs as disinflationary for the UK. The BoE should be able to cut in May.
11:45 AM GMT
Reeves under pressure to enact wealth tax as Labour rebellion on welfare cuts brews
Reeves is already taxing wealth – and it’s strangling the life out of Britain, our deputy economics editor Tim Wallace writes:
Rachel Reeves could scarcely get to the House of Commons exit on Wednesday before she was bombarded with demands for a tax on the rich to pay for yet more spending on benefits.
11:24 AM GMT
Hospitality sector ‘bitterly disappointed’ following Spring Statement
Warnings over the impact of increasing taxes in April from the pub and restaurant sector have fallen on deaf ears in Westminster, bosses say.
Kate Nicholls, the chief executive of trade organisation UK Hospitality wrote in industry newsletter Propel today:
“Hospitality business leaders hoping for a last-minute intervention from the government at this week’s spring statement have been left bitterly disappointed.
10:43 AM GMT
‘Expect steady rather than spectacular growth’
While Donald Trump’s tariffs continue to cast a shadow over the coming year, economists say we should expect cautious growth.
Here’s Matt Swannell, Chief Economic Advisor to the EY ITEM Club:
“Overall, we expect steady rather than spectacular GDP growth this year. While easing consumer caution will help to support growth, uncertainty around business prospects will likely hamper how much businesses are willing to spend. The stop gap Spring Statement didn’t move the needle on fiscal policy, which will likely continue to tighten, and past interest rate rises will continue to weigh on disposable incomes as many households refinance their mortgages.”
09:30 AM GMT
‘Rocky period’ ahead as tariffs threaten to hit economy
Economists at Pantheon Macro say that growth should improve in the first quarter of the year, with households likely to deploy some of their excess savings - or at least unlikely to raise the savings rate more. However, any recovery is severely at risk from potential tariffs froom the US next week.
“President Trump could upend the outlook if he has his way with tariffs on April 2. Other countries would likely retaliate strongly starting a global trade war from which everyone loses. But we assume even President Trump’s tolerance for economic pain would be exceeded in such a scenario and he would have to ameliorate his actions, but it could be a rocky period.”
08:51 AM GMT
‘Big picture is of a struggling economy’
Ruth Gregory, deputy chief UK economist at Capital Economics, says that while there are some positive signs, the overall economic picture is gloomy:
“Today’s deluge of data confirmed that the economy was weak even before the full effects of higher business taxes are felt and that a high household saving rate continues to restrain GDP growth, although one hope is that households started to spend a little more freely in February.”
She adds:
“The saving rate remains unusually high, suggesting households are choosing to save rather than spend the bulk of those gains. The better news on retail sales in Q1 provides a glimmer of hope that that might be changing. Retail sales volumes leapt by 1.0pc [month on month] in February, following January’s 1.4pc gain (revised down from 1.7pc), although as was the case in January, some of that strength may have come at the expense of weakness in other parts of the economy.
08:37 AM GMT
Markets: FTSE and sterling flat after GDP figures
The FTSE 100 has barely budged this morning, trading around 4 points up at 8,669.94.
Sterling appeared to receive a minor boost from those positive retail figures but has dropped back down and is now treading water.
A pound is currently worth $1.2942 and €1.2009.
08:15 AM GMT
GDP figures suggest UK consumer coming back to life
While the headline GDP numbers are meagre, economists say that the underlying figures show some positive signs. Here’s Thomas Pugh, of RSM UK:
“As expected, headline GDP growth in Q4 was unchanged at 0.1pc. But the make-up of growth at the end of last year looks a bit healthier. What’s more, the economy grew by more than expected last year and there are now some clear signs that the UK consumer is coming back to life, which should push growth to 0.3pc in Q1.
07:47 AM GMT
Retail sales unexpectedly rise
Shop sales rose unexpectedly in February before the retail sector gets hit by massive tax rises this spring.
Monthly retail sales volumes jumped by 1pc in February to hit their highest level since July 2022, according to the Office for National Statistics (ONS).
This was driven by a jump in household goods purchases and followed 1.4pc monthly growth in January and far-outpaced the small contraction economists had expected.
But economists warned that the economic outlook for the retail sector is still gloomy.
Ruth Gregory, deputy chief UK economist at Capital Economics said: “Some of that strength may have come at the expense of weakness in other parts of the economy.”
Jacqueline Windsor, Head of Retail at PwC UK, said: “Overall, it’s clear that consumer confidence remains fragile and that is translating into subdued demand.”
The figures come ahead of a wave of cost increases for businesses in April, when Chancellor’s Rachel Reeves’s £25bn increase in employer National Insurance and her higher than expected rise in National Living Wage will kick in.
The British Retail Consortium (BRC) estimated these measures will cost the sector an additional £7bn in April.
07:20 AM GMT
This morning’s business news
The economy grew by just 0.1pc in the fourth quarter of last year, meaning growth in 2024 was 1.1pc. Here’s what else you need to know this morning:
5 things to start your day
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Public sector wages to surge by £50bn despite Starmer’s Civil Service cuts | Treasury is setting aside £150m for scheme to encourage Whitehall staff to leave
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Reeves already running out of road as IFS warns of more tax raids | Chancellor ‘may come back for more’ after higher borrowing costs wipe out headroom
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Miliband failing to tackle sky-high energy bills in race to net zero, MPs warn | Energy Secretary accused of taking too long to review soaring gas and electricity prices
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Angela Rayner’s banter crackdown is threat to free speech, warns EHRC | Workers’ rights bill could allow people to ‘sue for hurt feelings’, ministers told
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Reeves is already taxing wealth – and it’s strangling the life out of Britain | A host of devastating duties are wrecking the economy. Some Labour ministers want more
What happened overnight
Asian stocks were mostly lower as investors mulled uncertainties brought by US President Donald Trump’s latest tariffs.
Tokyo’s benchmark Nikkei 225 sank 2pc to 36,920.84 on renewed heavy selling of auto-related shares.
Toyota Motor shares lost 2.8pc while Honda Motor dipped 2.4pc.
A report that Tokyo’s inflation rate rose to 2.9pc this month spurred expectations that the Bank of Japan will likely raise its key interest rate at its May policy board meeting.
In South Korea, the Kospi sank 2pc to 2,555.36. Hyundai Motor lost 4pc and Kia’s shares lost 3pc.
Hong Kong’s Hang Seng turned lower, falling 0.6pc to 23,436.01. The Shanghai Composite index lost 0.5pc to 3,359.18.
Australia’s S&P/ASX200 edged 0.2pc higher, closing at 7,982.00.
On Wall Street, the Dow Jones Industrial Average fell 0.4pc, to 42,299.70, the S&P 500 fell 0.3pc, to 5,693.31, and the Nasdaq Composite fell 0.5pc, to 17,804.03.
In the bond market, the cost of borrowing by the US government rose. The yield on the all-important 10-year US Treasury notes rose to 4.365pc, from 4.350pc late on Wednesday.