Britain has borne the brunt of the bond market sell-off triggered by the war in the Middle East, with UK borrowing costs rising further than those in any other European nation.
The ten-year gilt yield – a key measure of the interest rate paid by the Government to borrow – rose as high as 4.56 per cent yesterday, having been 4.23 per cent last week.
Bond yields across Europe have also risen – but not by as much – with analysts warning that the ‘parlous’ state of the UK’s finances leaves the country vulnerable to soaring energy prices.
The threat of a new wave of inflation – as oil and gas prices soar – has dented hopes of an interest rate cut this month, with the National Institute of Economic and Social Research warning this week that the Bank of England may have to raise them back above 4 per cent to keep prices under control.
The surge in borrowing costs makes a mockery of Chancellor Rachel Reeves’ claims this week to have ‘restored economic stability’.
Shadow Chancellor Mel Stride said: ‘The markets are flashing red and Britain is vulnerable thanks to Labour’s mismanagement.’
Rate fears: The threat of a new wave of inflation – as oil and gas prices soar – may force the Bank of England to raise interest rates back above 4%
He said this ‘has left us in a worse position than other countries to deal with the impact of events around the world, and the markets can see that’.
While UK bond yields have risen by 0.33 percentage points this week, Germany has seen a rise of 0.2 percentage points and France a 0.26 percentage point increase.
Italy, Greece and Portugal – whose debt was seen as toxic for large parts of the last decade – have also seen smaller increases.
Britain’s bond yields remain the highest in the G7 – meaning it costs more for the Government to borrow than it does for administrations in the US, Canada, Japan, Germany, France and Italy.
Russ Mould at broker AJ Bell said: ‘The UK gilt market has taken a bigger knock than many of its peers, and the UK does pay more to borrow than any of Portugal, Ireland, Italy, Greece or Spain, the so-called PIIGS, whose public finances were in a terrible mess.
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