Sterling and the UK government’s borrowing costs have stabilized after a few days of turbulence.
Sterling rose slightly to $1.22 on Tuesday after falling to around $1.21 on Monday, its lowest level since November 2023, while government borrowing costs fell slightly.
Borrowing costs have risen in many countries around the world, but some have argued that decisions taken in the Budget appear to have made the UK more vulnerable.
Recent market developments have put Chancellor Rachel Reeves under pressure. On Monday, Prime Minister Sir Keir Starmer said she was doing an “incredible job”, but the Tories said she was “holding on by her fingernails”.
Reeves faces questions in the Commons this afternoon for the first time since returning from a trip to China this weekend.
She said the trip would improve economic ties with Beijing, but conservatives said she had “fled” during a period of uncertainty in financial markets.
Governments typically borrow money by selling bonds to large investors, such as pension funds. UK government bonds are known as Gilts.
The yield on the 10-year gilt – the interest rate at which the government repays a decade-long loan to investors – fell slightly to 4.87% on Tuesday, after rising to almost 4.9% on Monday, its highest high level for 17 years.
Meanwhile, the yield on 30-year government bonds fell slightly to 5.42% from 5.44% on Monday, its highest level in 27 years.
The cost of public debt in Germany, France, Spain and Italy has also increased. Experts say investors are predicting that tariffs imposed by U.S. President-elect Donald Trump will increase inflation in the United States, meaning interest rates will remain high there and elsewhere.
