Markets Take Fright as Gilt Yields Hit a Two-Month High
Government borrowing costs jumped to their highest in two months and the pound fell after Mr Burnham said he would use “any flexibility” within the fiscal rules. The ten-year gilt yield rose to around 5 per cent, sterling slipped to $1.34 and the FTSE 100 closed lower. Rachel Reeves’s departure, and the delay in naming a Chancellor, unsettled investors who had treated her fiscal rules as an anchor.
Analysts warned that the calm before Mr Burnham’s arrival reflected relief that a market-friendly Chancellor was eventually chosen, not confidence in the platform. Reports of up to £24bn in spending plans — including bringing Thames Water into administration and funding free social care — sharpen the credibility test, with UK borrowing costs already the highest in the G7. “Investors want to see it before believing it,” said Kathleen Brooks of XTB, citing “significant confusion” over the new government’s economic policy. Watch this week’s inflation and borrowing data, and whether gilts stabilise once the package is costed.