Swap rates rise to three-year high as increase in oil prices leads to fears of higher inflation
Homeowners in the UK are braced for a jump in mortgage rates, driven by higher inflation and interest rate increase expectations amid turmoil in the global bond markets.
UK swap rates, which lenders use to price mortgages, have risen to a three-year high, as this week’s global bond market sell-off ripples through the economy.
Continue reading...Fair to say the current sell-off is international, but the PM has said little yet to make investors rethink the UK’s status
It’s too soon to say the bond markets have turned on Andy Burnham. Tuesday’s spike in gilt yields, taking the UK’s 30-year borrowing costs to their highest level since 1998, was part of an international sell-off of government debt.
The main contributors are well known. The Iran war, by increasing the cost of energy, has overturned the comforting start-of-the-year thesis of falling global inflation and interest rates. A plunging Japanese yen has kicked away another assumed source of financial stability. The US treasury secretary, Scott Bessent, hasn’t calmed nerves with his solo, and so far futile, attempt to bring down US yields. Meanwhile, the early stage of the AI revolution is an exercise in issuing squillions of debt before long-term returns on capital can possibly be assessed meaningfully.
Continue reading...Yield on 30-year gilts highest since 1998 as rout triggered by global factors underlines tricky backdrop John Healey faces
The chancellor’s headroom against Labour’s fiscal rules could be almost halved at his first budget if the current global bond sell-off persists into the autumn, economists say.
The UK’s long-term borrowing costs jumped to their highest level since early 1998 on Tuesday as investors dumped government bonds, betting on higher inflation.
Continue reading...PM wants to reduce department’s stranglehold on public purse and bring long-term thinking to economic policy
Andy Burnham is far from the first prime minister to dream of taming the power of the mighty Treasury.
Boris Johnson all but forced the resignation of Sajid Javid by handpicking his team; Margaret Thatcher favoured her economic adviser Alan Walters over Nigel Lawson, prompting the latter’s furious resignation; and Tony Blair and Gordon Brown’s power struggle was the stuff of Whitehall legend.
Continue reading...Some want the chancellor to exploit newly flexible fiscal rules – others want a more creative approach, such as borrowing from markets
With just 12 weeks to go until his first budget, new chancellor John Healey is seeking ways to ramp up public investment, without busting the Treasury’s fiscal rules – and some economists are urging him to be bold.
As he settles into No 11 Downing Street, the former defence secretary’s most immediate challenges concern day-to-day government spending.
Continue reading...Some want the chancellor to exploit newly flexible fiscal rules – others want a more creative approach, such as borrowing from markets
With just 12 weeks to go until his first budget, new chancellor John Healey is seeking ways to ramp up public investment, without busting the Treasury’s fiscal rules – and some economists are urging him to be bold.
As he settles into No 11 Downing Street, the former defence secretary’s most immediate challenges concern day-to-day government spending.
Continue reading...UK government borrowing costs jump amid political uncertainty and oil price rise that fuelled inflation worries
The pound was heading for its worst week in 18 months on Friday as City traders anticipated that the UK prime minister, Keir Starmer, could face a challenge from the Manchester mayor, Andy Burnham, later this year.
After days of uncertainty over Starmer’s future, sterling dropped by almost three cents, or 2%, during the week to $1.336 on Friday, a five-week low. That would be the largest weekly drop against the US dollar since Donald Trump’s election win in early November 2024.
Continue reading...Brent crude rises 8% as US president vows to hit Iran ‘extremely hard’ over coming weeks
Oil prices have soared after Donald Trump vowed in a televised speech to hit Iran “extremely hard” over the coming weeks, knocking hopes of a near-term end to the conflict in the Middle East.
Brent crude prices jumped by as much as 8% on Thursday to $109.74 a barrel, reversing Wednesday’s drop when hopes of a de-escalation in the Iran war pushed the international benchmark below the $100-a-barrel mark at one point.
Continue reading...Chancellor axes two-child benefit cap and cuts energy bills paid for by mansion tax and freezing tax thresholds
Rachel Reeves targeted Britain’s wealthiest households with a £26bn tax-raising budget to fund scrapping the two-child benefit policy and cutting energy bills.
On a chaotic day that involved key details of her budget accidentally being released early by the Office for Budget Responsibility (OBR), the chancellor defended the measures, saying she was “asking everyone to make a contribution to repair the public finances”, but that she wanted the wealthiest to pay the most.
Continue reading...Exclusive: Chancellor hints at rises and calls out past ‘scaremongering’ over VAT on private schools and changes to non-doms
Rachel Reeves has said higher taxes on the UK’s wealthy will form part of next month’s budget, as she shrugged off the “scaremongering” and “bleating” of her critics, and stressed her determination to repair the public finances.
Speaking in Washington, where she is attending the annual meetings of the International Monetary Fund (IMF), the chancellor told the Guardian there “won’t be a return to austerity” and hinted at tax increases for the most well-off.
Continue reading...Investors rattled by resignation of French PM but country is not alone in trying to grapple with political maths
Macron asks outgoing French PM to make last-ditch effort to avoid political crisis
What happened on a chaotic day in French politics – and what next?
Sébastien Lecornu’s abrupt resignation as the French prime minister on Monday after less than a month in the role marked the latest clash between France’s stretched public finances and its polarised politics.
Lecornu was the latest prime minister to try and fail to cobble together a package of spending cuts and tax rises that would pass muster in a parliament without a clear majority, and contain mounting bond market pressures.
Continue reading...Chancellor will face more limited fiscal headroom at budget after yield on 30-year bond increases to 5.723%
Britain’s long-term borrowing costs have hit their highest level in 27 years, intensifying the pressure on the chancellor, Rachel Reeves, before the autumn budget.
The yield, or interest rate, on 30-year UK government debt hit 5.723% on Tuesday. That is its highest level since 1998, indicating that it will cost the UK more to borrow from the markets, above the previous 27-year high of 5.649% set in April.
Continue reading...Loss of Moody’s triple-A rating comes amid concerns about fiscal trajectory and widening budget deficit
US government debt may come under more pressure this week after the credit rating agency Moody’s stripped the US of its top-notch triple-A credit rating.
Moody’s dealt a blow to Washington last Friday, when it downgraded the US and warned about rising levels of government debt and a widening budget deficit. Moody’s cut its credit rating on the US by one notch to Aa1 from Aaa, becoming the last of the big three agencies to downgrade the US.
Continue reading...Fund boss Kristalina Georgieva says it is important that US and trading partners avoid escalating trade war
The International Monetary Fund (IMF) has warned that Donald Trump’s implementation of swingeing tariffs poses a “significant risk” to the global economy, as stock markets were hit by a punishing worldwide sell-off by investors.
Kristalina Georgieva, the managing director of the IMF, said it was important that the US and its trading partners avoided further escalating Trump’s trade war, while stock markets plunged on Friday as China retaliated against the tariffs.
Continue reading...Charlie Bean says OBR forecasts are ‘flaky’ and cautions against trying to hit targets five years away
The former Bank of England deputy governor Charlie Bean has warned the chancellor against making kneejerk cuts in next week’s spring statement to try to hit fiscal targets that are five years away.
Rachel Reeves is preparing to slash spending, including on disability benefits, in response to weaker forecasts from the independent Office for Budget Responsibility (OBR) – prompting a backlash from within her own party.
Continue reading...Berlin’s ‘big bazooka’ proposal sends industrial stocks surging but fiscal sea change also hikes borrowing costs
European financial markets have rallied sharply and German borrowing costs have soared after the country’s prospective leaders announced a historic deal to loosen its “debt brake” rule to boost spending on defence.
The yield – in effect the interest rate – on 30-year German government bonds rose by about 25 basis points to 3.08% in its biggest daily increase since October 1998.
Continue reading...Weak jobs market and above-target inflation will dent Reeves’s growth plans and may wipe out fiscal headroom
With the public finances tight and Rachel Reeves having pledged to balance the books, interest rate cuts are one of the few levers that could boost the UK’s economic growth in the short term, and the chancellor will be glad of the Bank of England’s quarter-point reduction on Thursday – and the clear signal that it is now in cutting mode.
Seven of the monetary policy committee’s (MPC) nine members backed the quarter-point drop, taking the Bank’s policy rate to 4.5%, while two wanted to be more “activist”, proposing a half-point cut. The Bank of England’s governor, Andrew Bailey, said the MPC would be “taking a gradual and careful approach to reducing rates further”.
Continue reading...Donald Trump says China’s DeepSeek is a ‘wake-up call’ for American AI firms
Donald Trump has suggested that Microsoft is in talks to acquire TikTok and that he would like to see a bidding war over the app.
When asked if Microsoft was in talks to buy the app, the US president said “I would say yes”, adding “A lot of interest in TikTok. There’s great interest in TikTok.”
Continue reading...Increase to £17.8bn is well above City forecasts and is highest December figure for four years
UK government borrowing jumped unexpectedly to £17.8bn last month, piling pressure on Rachel Reeves to plan budget cuts before a spending review in the summer.
The figure was about a quarter higher than the City had forecast and was up by £10.1bn more than in the same month a year earlier, making it the highest December borrowing for four years.
Continue reading...Bitcoin rises by 4% past $109,000, reversing earlier losses; Donald Trump meme coin price tanks after wife Melania also launches token
The UK chancellor, Rachel Reeves, will travel to the World Economic Forum’s annual meeting in Davos this week in the hope of convincing some of the world’s largest companies to invest, with allies saying she will use spending cuts rather than further tax increases to meet her own fiscal rules.
At the same time, the Treasury is considering a push to cut the benefits bill, in a move that is causing nervousness among Labour MPs.
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