Sterling fell to a nine-month low after the UK government’s borrowing costs continued to rise.
The drop came as UK 10-year borrowing costs hit their highest level since the 2008 financial crisis, when bank borrowing came to a near halt.
Economists warn that rising costs could lead to further tax hikes or cuts to spending plans as the government tries to meet its self-imposed borrowing target.
The government said it would not say anything before official borrowing forecasts from its independent forecaster due in March.
“I’m obviously not going to move forward… it’s up to the OBR (Office for Budget Responsibility) to make its forecasts.”
“The stability of public finances is a prerequisite for economic stability and economic growth,” declared the Prime Minister’s official spokesperson.
Shadow chancellor Mel Stride has claimed the chancellor’s big spending and borrowing plans in the Budget “make borrowing more expensive for the government”.
“We should be building a more resilient economy, not raising taxes to pay for fiscal incompetence,” he said in an article on X.
Gabriel McKeown, head of macroeconomics at Sad Rabbit Investments, said rising borrowing costs “have effectively eviscerated Reeves’ fiscal space, threatening to derail Labor’s investment pledges and potentially necessitate a painful recalibration spending plans.
The warning comes after the cost of 30-year borrowing hit its highest level in 27 years on Tuesday.
At the same time, the British pound fell 1.1% to $1.233 against the dollar, marking its lowest level since April last year.
The government generally spends more in taxes than it collects. To make up this deficit, she borrows money, but he has to pay it back – with interest.
One way it can borrow money is through the sale of financial products called bonds.
Globally, the cost of government borrowing has risen in recent months, sparked by investor fears that US President-elect Donald Trump’s plans to impose new tariffs on goods entering the US from Canada, Mexico and China do not cause inflation to rise.
Laith Khalaf, head of investment analysis at AJ Bell, said Chancellor Rachel Reeves’ budget in October, which increased borrowing, may have had a small impact, but said the rises in the UK were similar to those in the United States.
“In the UK, higher yields put pressure on public finances and increase the risk that Reeves will return with another tax-raising budget,” he said.
But he also said the current rise in borrowing costs could be “a storm in a teacup that dissipates quickly.”
The official forecaster, the Office for Budget Responsibility (OBR), will next month begin the process of updating its forecasts on government borrowing, which will be presented to Parliament at the end of March.
