Time to recap.

The turmoil in the UK bond market has calmed today, as the government insisted there was no need to intervene to stem rising borrowing costs.

After an early jump, UK bond yields have fallen back, and are only slightly above last night’s levels, meaning the country’s borrowing costs are little changed today/

The pound, which hit 14-month low in early trading, has recovered some ground – and is down two-thirds of a cent today at $1.23.

The recovery came after chief secretary to the Treasury, Darren Jones, told MPs that the government remained fully committed to its fiscal rules.

He said:

“In recent months, moves in financial markets have been largely driven by data and geopolitical events, which is to be expected as markets adjust to new information.

“UK gilt markets continue to function in an orderly way and underlying demand for the UK’s debt remains strong.”

Jones also denied that the government had made any emergency interventions, by releasing statements on the issue, and that there was no need for one anyway.

Jones was answering an urgent question in the House of Commons, called after the UK’s 10-year borrowing costs hit the highest since 2008, while 30-year gilt yields climbed to a 26-year high.

Bank of England deputy governor Sarah Breeden also struck a calming tone tonight, telling an audience at the University of Edinburgh Business School that moves in the gilr market had been “orderly”.

Economists have suggested that the recent rise in borrowing costs has all-but-eaten away the headroom left by chancellor Rachel Reeves to hit her fiscal goals.

Some have suggested she could cut spending, or potentially raise some taxes, in the spring statement scheduled for March.

The Liberal Democrats called for Reeves to cancel a planned trip to China this week, and instead deliver an emergency budget.

Bank of England deputy governor Sarah Breeden has told her audience in Edinbugh that the central bank is watching the moves in the UK gilt market, and believes they have been “orderly”.

Breeden says:

Of course we’re monitoring what’s happening in the gilt market. It’s a core market, we care a lot about it.

A lot of the price moves reflect global factors happening in the US and Europe as well as here in the UK and that’s to be expected as markets react to news about what the outlook is for the fiscal position

We have a dashboard, we’re monitoring it, so far the moves have been orderly, we’ll continue to watch this space. So far so good.

Bank of England deputy governor Sarah Breeden has warned that activity in the UK economy appears to be slowing, which reinforces the case to cut interest rates.

In a speech to University of Edinburgh Business School this afternooon, Breeden says data is pointing to a slowing in economic activity in the UK, citing the small falls in GDP in September and October.

While the energy price shock has faded, the economy has also facing new shocks – including the changes to employers’ National Insurance Contributions (NICs) and the increase to the minimum wage that will be implemented in April, Breeden points out.

She says:

First, as monetary policymakers we must always be analysing which shocks we think are hitting the economy and what their implications might be for the medium-term inflation outlook. We have to remain flexible and constantly challenge ourselves about how wrong we could be and what that would mean. We must always be reading between the lines.

Second, I have updated my views on the shocks that have been driving the economy recently. The demand environment has been more resilient in recent years than we initially thought – partly because the response to the energy price shock was less negative than we thought, and probably also reflecting weaker supply. There is now some tentative evidence that activity is starting to weaken, though we expect it to pick up again.

Third, the recent evidence further supports the case to withdraw policy restrictiveness and I expect to continue to remove restrictiveness gradually over time. The important questions as I look ahead are what combination of shocks explains the recent slowdown in activity and how will employers respond to higher employment costs. The answers to those questions will affect the outlook for medium-term inflation and so the speed at which restrictiveness needs to be removed.

These charts paint a picture of the key moves we’ve seen in the UK bond market, the foreign exchange market, and equities in recent days:

It’s rarely good news when the UK bond market is headline news, so many Britons may be worried about the implications of the gilt market turmoil on their finances.

Financial services firm Hargreaves Lansdown has explained the impact on pensions and annuities.

Here’s Helen Morrissey, their head of pensions analysis:

“Falling bond prices could cause concern for retirees who are coming up to retirement invested in lifestyling arrangements. These move the member out of equities and into bonds the closer they get to retirement. However, there’s no need for knee-jerk reactions. Those who intend to remain invested through income drawdown have the ability to hold fire on drawing an income until the markets have recovered. Those who are looking to annuitise some or all of their pension pot will also likely find that the spike in gilt yields can push the income available from an annuity upwards, softening the impact. It’s also worth saying that you don’t have to annuitise all your pension at once. You can do it in stages throughout retirement securing a guaranteed income as your needs evolve while leaving the rest invested in drawdown where it can grow.”

And on mortgages, Sarah Coles, head of personal finance. at Hargreaves Lansdown, says:

“The rise in gilt yields always raises the spectre of rising fixed mortgage rates, because they’re very responsive to changes in interest rate expectations. Rates have already crept up very slightly, but there’s no need for prospective borrowers to panic at this stage.

It’s worth noting that although the bond markets have thrown a wobbly, it hasn’t particularly altered expectations of what the Bank of England is likely to do to rates. The market is still pricing in just over a 60% chance of a rate cut in February – it has moved from 66% to 64%, but that’s nothing to frighten the horses.

Very slightly higher rates have been brought in by some mortgage lenders, who had to secure a fixed rate in the swap markets while they’re more expensive, but as yet there’s nothing more widespread. This is likely to filter into more deals, but it’s not yet clear how long this disruption in the bond markets will last.

The bond market in the UK reacted dramatically to news out of the US – more so than other markets around the world. In the coming days, this could subside if the bond markets decide they’ve got a bit ahead of themselves. There are no guarantees, but the strength of the immediate reaction means there’s room for the markets to gain a bit of perspective. If that happens, we’ll see yields drop again, and mortgage rates could ease.

Of course, there are no guarantees. If more worrying news comes out of the US, or fears of stagflation spread, bond yields could remain higher, and if this happens, there’s more of a chance it will be reflected in more widespread higher mortgage rates.”

Rachel Reeves will not break her promise to borrow money only for investment, even as gilt yields rose to their highest levels since the financial crisis, her deputy has said.

Darren Jones, the Treasury chief secretary, told MPs the chancellor would not borrow to pay for day-to-day spending despite rising UK borrowing costs that threaten to make it much harder for her to meet her fiscal rules.

He was answering an urgent question in the Commons about the recent market turmoil, which has sent UK borrowing costs higher, the pound lower and prompted calls for Reeves to cancel her long-planned trip to China.

Jones told the Commons:

“There should be no doubt about the government’s commitment to economic stability and sound public finances, this is why meeting the fiscal rules is non-negotiable.”

Vauxhall owner Stellantis has said that it has met the UK government’s electric car targets for 2024, despite blaming the rules for the planned closure of its van factory at Luton.

The carmaker on Thursday said that it sold 39,500 electric cars in 2024, up 59% compared with a year earlier. It said that “strong sales of the group’s extensive line-up of electric vehicles” meant it had complied with the UK’s zero-emission vehicle (ZEV) mandate for both cars and vans, without resorting to loopholes or buying “credits” from other manufacturers.

Under the mandate, carmakers must sell increasing numbers of electric vehicles every year. However, the industry has lobbied strenuously for the government to relax the targets, with changes expected by the spring.

Stellantis blamed the mandate for its decision to put 1,100 workers at the Luton factory at risk of redundancy, in one of the last decisions overseen by Carlos Tavares before he was ousted as chief executive. The Guardian previously revealed that Stellantis had told investors that it was confident of meeting the targets, but Stellantis argued on Thursday that tightening electric car targets would cause a problem in the coming years.

Eurig Druce, group managing director of Stellantis in the UK, said:

Despite offering a very comprehensive line-up of popular electric cars and vans, and a strong will and focus on making our EVs as attainable as possible, the steep trajectories of the ZEV mandate are out of step from current demand. Put simply, if the UK is to achieve its transport emission ambitions, and for EVs to represent 80% of new cars sold in 2030, then consumers are going to need more encouragement from government to do so.

Andy Palmer, the former boss of carmaker Aston Martin and now a consultant, said:

Against all odds, at least according to pockets of the media, Stellantis has proved that the ZEV mandate is achievable by hitting targets in 2024. This is even more impressive after the automaker has been reported, potentially incorrectly, as one of the firms most outspoken about reforming the policy.

Or perhaps all they are asking for is a little help to get more bums on EV seats. The ZEV mandate is boosting choice for consumers and driving down prices.

Away from the drama in the government bond markets, McGill and Partners, a London based broker, has launched a programme to reinsure commercial properties in Ukraine against the risk of war damage.

The scheme is the first of its kind, my colleague Isaaq Tomkins reports.

They are collaborating with FortuneGuard, a Lloyd’s Lab insurance technology company, which will use AI to provide risk assessments for properties more than 100km from the front line.

Data on projectiles fired into the country will be used in order to provide businesses with a war-risk quote.

Since the outbreak of war, the international reinsurance market largely withdrew from providing war risk coverage in Ukraine. Now ARX, a local Ukrainian broker, will be able to underwrite policies up to $50m in value, with reinsurance provided by the London market and Lloyd’s syndicates. This is a hundred-fold increase on their previous policy limit of $500,000.

“We recognise the significant role of the insurance industry in supporting Ukraine’s economic regrowth.” said Steve McGill, CEO of McGill and Partners.

“By harnessing the power of AI and comprehensive data sets, we have been able to take a more informed approach to presenting and underwriting risk.”

Although UK goverment bonds have recovered from today’s losses, the pound is still weaker.

Sterling is down three-quarters of a cent at $1.2295, having earlier hit a 14-month low of $1.2240.

That will push up the cost of imports into the UK.

But, a weaker currency could also help the UK escape from a vicious circle of higher yields, lesser fiscal space and lower growth.

So argues Deutsche Bank analyst George Saravelos, who told clients:

A weaker pound does three things. First, it helps improve the country’s negative net international investment position by a mechanical revaluation of UK-owned foreign assets. Two, it cheapens up UK assets (= gilts) so eventually they become attractive to buy again for a foreigner. Third, it helps the current account deficit adjust, reducing the reliance on foreign funding.

To be sure, the Chancellor and central bank have an important job to do. The Bank of England needs to maintain the credibility of the inflation target. The Chancellor needs to signal sensitivity to the worsening global environment by potentially paring back some spending.

Both need to avoid any signal of fiscal dominance. But beyond a few tweaks here and there, it is largely the currency that will do the work of stabilizing the bond market combined with an eventual peak of US yields.

Calm has returned to the UK bond market!

The yields on UK government debt, which had jumped again this morning, have now dropped back to their levels at the end of trading last night.

Investors have, perhaps, noted Treasury minister Darren Jones’s insistance that the gilt market has been functioning as normal and there is no need for the government to intervene.

The yield (or interest rate) on 10-year bonds, which hit its highest since 2008 this morning, has now slipped back to 4.796%.

Thirty-year bond yields have returned to 5.355%, having hit their highest since 1998 earlier today.

With today’s urgent question over the rising cost of borrowing over, what did we learn?

1) The government is sticking to its fiscal rules, even though rising gilt yields are eating into their headroom

Chief secretary to the Treasury Darren Jones insisted that meeting the rules (to not borrow for day-to-day spending, and to have the national debt falling in five years) is non-negotiable.

2) No return to austerity.

If borrowing won’t increase further, and taxes won’t go again, isn’t cutting spending the only alternative to keep within the fiscal rules, several Conservative MPs suggested.

Jones said public spending will be “within the numbers set out in the budget”, and didn’t explicitly rule out tax rises.

3) No reason to panic!

Often a witty presence, Darren Jones seemed keen to exude calm from the dispatch box.

After days of rising borrowing costs, he declared:

UK gilt markets continue to function in an orderly way

And he wouldn’t accept that Treasury press releases to journalists counted as an ‘emergency intervention’, saying:

There has been no emergency statement or emergency intervention, these are make-believe words being propagated by members on the benches opposite….

There is no need for any emergency intervention, and there hasn’t been one.

The Liberal Democrat Leader, Ed Davey, has called on the chancellor to cancel her trip to China and instead make an emergency fiscal statement to parliament cancelling the national insurance hike planned for April, to boost economic growth and give the Bank of England more room to bring interest rates down.

The increase in employers’ national insurance costs is expected to push inflation slightly higher, as some companies have already signalled price rises (see earlier post), while the national minimum wage is also going up in April, by 6.7%.

Higher inflation will make it harder for the central bank to make further rate cuts. Markets are now expecting two quarter-point reductions this year, rather than three as forecast before December.

Davey said:

“Instead of jetting off to China, the chancellor should urgently come before the House of Commons to cancel her counterproductive jobs tax and set out a real plan for growth.

“The country is paying an ever-higher price for the total mess the Conservative Party made of our economy, and the chancellor needs to realise that she’ll never dig us out of this hole without a far more ambitious plan to grow our economy, including rebuilding trade with Europe.

The government’s misguided jobs tax is hurting businesses and hitting investment badly, meaning it will hold back growth while failing to raise the funding the chancellor claims for the NHS.

The chancellor should look instead at our plans to raise revenue without hitting jobs and growth, by raising taxes on the profits of the big banks, social media giants and online gambling firms – all of which are making eye-watering profits while ordinary families struggle.”

Reform MP Richard Tice has warned parliament that the UK is heading towards a financial crisis.

Tice points out that UK GDP fell in September and October (both by 0.1%), while sterling is “falling, almost collapsing”.

Confidence is falling and investors are fleeing, he warns, while the only things going up are “inflation, wasteful public spending, and the cost of debt”.

Tice says:

We are heading towards, be under no illusion, a financial crisis.

He asks Darren Jones to tell the chancellor to return from her ‘ridiculous’ trip to China, and cut daft spending and wasteful regulation to create growth.

Jones replies that he will not tell Reeves to come back from her trade trip to China.

Conservative MP Bernard Jenkins, argues that Darren Jones is making a significant announcement today – that austerity is effectively back.

Jenkins makes the point that if tax rises and borrowing increases are off the table, then the only lever left is spending cuts.

He says:

There is no way that the public finances can be remedied by another budget of wishful thinking, pretending that increased borrowing and spending will produce growth.

That has been proved as a false way to lead the economy, he argues.

Darren Jones says the government is not bringing back austerity – that was an ideological cuts to public finances and the size of the state, irrespective of what it meant for public services.

Chancellor Rachel Reeves announced the ‘opposite of austerity’ last autumn, the chief secretary to the Treasury insists, by making more money available for public services.

Harriett Baldwin MP accuses Rachel Reeves of having ‘fled to China’ rather than face MPs over the rise in public borrowing costs, because she realises her budget means she is “the arsonist”.

Baldwin says yesterday’s statement from the Treasury (which said the government has an iron grip on the public finances) was an “extraordinary emergency” effort to calm the markets.

Darren Jones says these “inflammatory” comments are rather surprising, and don’t reflect reality.

The trip to China has been in the diary for weeks, he points out.

And he rejects claims that the Treasury has intervened in the markets, saying yesterday’s statement was simply a response to questions from the media.

Jones says:

There has been no emergency statement or emergency intervention, these are make-believe words being propagated by members on the benches opposite….

There is no need for any emergency intervention, and there hasn’t been one.

[as reported earlier, the Daily Telegraph reported last night’s statement as the Treasury stepping in to halt market mayhem.

Technically, an intervention actually involves a government or central bank actually buying or selling an asset to move the markets, not simply issuing a press release].

Shadow chancellor Mel Stride responds, demanding to know where Rachel Reeves is to answer today’s question.

Stride blames the chancellor’s decisions for pushing long-term borrowing costs up to a 27-year high.

The economy is now flatlining, he says, as business confidence has “simply evaporated”.

He tells MPs:

Higher debt and lower growth are understandably now causing real concerns among the public, amongst businesses, and in the markets.

Stride brushes aside Darren Jones’s argument that international geopolitical factors are influencing the bond market, pointing out that the UK’s borrowing premium over German bonds recently hit its highest level since 1990.

Darren Jones then tells MPs that he will not preempt the forecasts which the OBR will deliver for the spring statement on 26th March (which will show whether or not the UK is meeting the fiscal rules).

He adds:

There should be no doubt of the government’s commitment to economic stability and sound public finances.

This is why meeting the fiscal rules is non-negotiable.

Shadow chancellor Mel Stride is asking an urgent question in the House of Commons now, about “the growing pressure of borrowing costs on the public finances”.

He is asking it on a morning in which the UK’s 10-year borrowing costs hit the highest since 2008, while 30-year bond yields reached the highest since 1998.

Although Stride is asking the question to chancellor Rachel Reeves, it will be answered by her deputy Darren Jones, chief secretary to the Treasury.

Jones tells MPs that financial markets are “always evolving”, and cites the long-standing convention that the government does not comment on specific market movements. He won’t break that convention today.

Jones says that changes to bond yields are determined by many factors, both international and domestic.

In recent months, financial market moves have been largely driven by “data and global geopolitical events”, Jones says, as they adjust to “new information”.

He declares:

UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong, with a generally well-diversed investor base.

Jones cites an auction of five-year gilts yesterday, which received bids for three times as much debt as was on sale.

More than half of UK firms are planning to raise prices or cut jobs in response to Rachel Reeves’s increase in employers’ national insurance contributions, a new survey from the Bank of England shows.

The Bank has polled chief financial officers from small, medium and large UK businesses, and asked how they expect to respond to the increase in employer National Insurance contributions that were announced in the Autumn Budget.

It found that 61% of firms expect to lower profit margins, 54% expect to raise prices, 53% expect lower employment and 39% expect to pay lower wages than they otherwise would have done.

Firms were allowed to select more than one option, the Bank says.

The bond market sell-off will be discussed in parliament today.

Shadow Chancellor Mel Stride has been granted an urgent question, “to ask the Chancellor of the Exchequer if she will make a statement on the growing pressure of borrowing costs on the public finances’.

The parliamentary discussion is expected to begin around 10:30am, Reuters reports.

The sell-off in UK government debt is easing slightly.

The yield on 10-year UK gilts is now up just 4bps at 4.834% (from a close of 4.795% last night). It had earlier risen by over 10 basis points to a new 16-year.

But even so, Kathleen Brooks, research director at XTB, says there is no doubt that the market for UK gilts (government debt) is experiencing “a crisis in confidence”.

Brooks says the UK’s fiscal position continues to look perilous this morning, adding:

The sell off in UK bonds this week, is a warning shot from the bond vigilantes. The UK is reliant on investors to fund its deficit.

The UK is not unique in needing this, however, the US can fund its deficit more easily because the US dollar is the reserve currency, and the Eurozone as a whole runs a surplus.

Since the market’s focus so far in 2025 has turned to the sustainability of public sector finances, the UK is understandably in the firing line.

Brooks adds that were are “not in a Liz Truss style moment”, because pension funds have changed their structures so they are less exposed to a rapid and unexpected rise in Gilt yields.

After the 2022 mini-budget, a ‘doom loop’ broke out as pension funds were forced into a fire sale of bonds as prices fell, which fuelled the sell-off.

Baking chain Greggs has warned that it faces ‘headwinds’ as UK consumer confidence falls, in a fresh blow to the economic outlook.

Greggs reported that sales growth slowed at the end of last year. In the final quarter of 2024, sales at its company-managed shops rose by 2.5%, weaker than the full-year sales growth of 5.5%.

Greggs says that it faced a “more challenging market backdrop” in the second half of 2024, as weaker consumer confidence hits footfall on the high street, meaning fewer visits to its stores.

Chief executive Roisin Currie says:

Whilst lower consumer confidence continues to impact High Street footfall and expenditure, our value-for-money offer and the quality of our freshly-prepared food and drink position us well to meet the headwinds we expect to see in the year ahead, and we remain confident in the significant long-term opportunity for growth.”

Shares in Greggs have fallen by 9.5% this morning.

A flurry of top UK retailers are revealing how they performed over the crucial Christmas period – and seeing their shares fall.

Tesco, the UK’s largest supermarket, declared it enjoyed its “biggest ever Christmas”, with sales at established UK stores rising by 4% in the six weeks to 4 January. But shares have dropped by 1.6% this morning.

Marks & Spencer says it also had a good Christmas, with like-for-like food sales up 8.9% in the 13 weeks to 28 December.

M&S warns, though that “the external environment remains challenging, with cost and economic headwinds to navigate”. Its shares have fallen by 6% this morning.

Discount retailer B&M reported a 2.8% increase in UK sales in the last quarter of 2024, with CEO Alex Russo saying “the business remains undistracted by the current economic headlines”.

B&M has also narrowed its forecast for profit growth this year, knocking its shares down by 10% this morning.

The bond market mayhem makes the front pages of several UK newspapers today.

The Daily Telegraph splashed on last night’s statement from the Treasury that they have an ‘iron grip’ on the public finances, calling it an intervention designed to stabilise the markets:

The Daily Mail says the rise in borrowing costs is a ‘red alert’ warning for chancellor Reeves, who may have to cut spending or lift taxes to keep within her fiscal rules.

The i picks up on that point too, saying Britain’s borrowing costs have turned ‘toxic’.

UK borrowing costs are rising again this morning, despite the government’s efforts to calm the markets last night.

The yield, or interest rate, on benchmark 10-year UK debt rose by 12 basis points (or 0.12 percentage points) in early trading in London to 4.921%, the highest since 2008.

Thirty-year bond yields, which hit 28-year highs this week, are rising again too – up over 10 basis points to 5.474%.

These moves suggest investors are still fretting about the outlook for the UK economy, given concerns about low growth and inflationary pressures.

It also shows the Treasury’s insistence last night that they have an ‘iron grip’ on the public finances has not eased the pressure….

Former Bank of England policymaker Martin Weale has suggested that we should look to 1976, rather than 2022, for a comparison with the current market anxiety.

1976 was an infamous year in UK economic history, when a plunge in the value of the pound forced the Labour government to turn to the International Monetary Fund for a bailout, with strict spending cuts attached.

Weale has told Bloomberg that this week’s rise in borrowing costs and fall in the value of sterling echo the 1976 debt crisis “nightmare”.

Weale, a professor of economics at King’s College London, says:

“We haven’t really seen the toxic combination of a sharp fall in sterling and long-term interest rates going up since 1976. That led to the IMF bailout.

So far we are not in that position but it must be one of the chancellor’s nightmares.”

The 1976 crisis was highly dramatic; chancellor Denis Healey was forced to abandon a flight to the IMF’s September 1976 meeting in Manila, to return to the Labour party conference in Blackpool and deliver a memorable speech defending his planned spending cuts as negotiations began with the Fund over the the bailout.

The pound’s tumble comes as Rachel Reeves prepares to fly to China in a bid to build closer ties with Beijing.

The chancellor, who is travelling with a delegation of City bigwigs, is holding the visit as part of a concerted effort to build bridges with China, as part of the government’s push for growth.

Our economics editor Heather Stewart explains:

City businesses have urged Reeves to help ensure China is not placed on the higher, more stringent, tier of a new “foreign influence registration scheme” – a decision ultimately to be made by the Home Office.

Lobbyists for overseas governments will have to declare their role under this new regime, but the “enhanced” tier will force companies carrying out any activity on behalf of another state to make themselves known – something business groups fear could prevent closer ties.

The chancellor will take the Bank of England governor, Andrew Bailey, with her on the visit to Beijing and Shanghai, as well as the FCA chief executive, Nikhil Rathi, and a string of senior banking figures, including HSBC’s chair, Mark Tucker.

Reeves will meet China’s vice-premier, He Lifeng, in Beijing before flying to Shanghai for discussions with UK firms operating in China.

Enhanced cooperation on financial services is at the heart of the Treasury’s hopes for the trip. Reeves lavished praise on the sector in her Mansion House speech last year, calling it the “crown jewel” of the UK economy.

The pound has dropped to a 14-month low in early trading in London, as the bond-market sell-off fuels anxiety over UK assets.

Sterling has lost a cent against the US dollar, extending its recent losses, falling to around $1.226.

That’s its lowest level since November 2023, suggesting that the jump in UK borrowing costs this week is continuing to worry the markets, at a time when the dollar is generally strengthening.

Michael Brown, senior research strategist at brokerage Pepperstone, has warned that “things are also getting rather ugly” in the UK.

Brown told clients this morning:

This dynamic, of yields moving higher, as the respective currency falls, is a classic sign of fiscal de-anchoring taking place, and of participants losing confidence in the Government in question’s ability to exert control over the fiscal backdrop.

We’re not at the Truss/Kwarteng stage just yet, but things are clearly on very shaky ground indeed.

Brown added that his preference is to be ‘short GBP’ – ie, betting that the currency will continue to fall.

Despite recent losses, the pound is still comfortably above the record low hit after the 2022 mini-budget, when it plunged to near-parity against the US dollar.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

After two days of sharp rises in UK borrowing, City experts are harking back to previous episodes of financial panic – including the dark days after Liz Truss’s mini-budget of 2022.

Britain finds itself in the eye of a global bond market storm at the moment, with the pound also weakening. Yesterday, the yield (rate of return) on 10-year UK government debt hit its highest since the 2008 financial crisis, a day after the 30-year bond yield hit its highest level since 1998.

Last night, Rachel Reeves insisted she had an ‘iron grip’ on the nation’s finances, with a Treasury spokesperson declaring:

“No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.

“UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has - anything else is pure speculation.

“Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change. Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”

It’s not exactly ‘pure speculation’, though, to point out that rising bond yields eat into the relatively small headroom available to the chancellor to hit her fiscal rules (to not borrow to fund day-to-day spending, and to show debt falling in five year’s time).

If the headroom has vanished by the spring statement in March, it will leave the chancellor with an unpalatable choice – cut government spending, despite demands from the public and cabinet colleagues for better services, or raise taxes further.

The borrowing costs of other governments have also been rising in recent sessions, inculding the US, where there are fears that Donald Trump’s presidency will drive up inflation, making interest rate cuts less likely.

But the situation in the UK feels more acute.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says “the UK’s demons are back”, driven by heightened fiscal concerns – which are “evoking memories of Liz Truss’s chaotic ‘mini-budget days.’”

Ozkardeskaya added:

Back then, markets lost confidence in the government’s spending plans, triggering an aggressive selloff that forced the BoE to intervene. The fallout toppled Truss’s government, setting the stage for Labour’s strong electoral win.

But now, the newly elected Labour government, which promised to rescue the country, improve finances, and boost growth, faces its own reckoning. To deliver on its ambitions, it needs market support – a resource proving elusive. Without it, borrowing costs will spiral higher, forcing tougher choices: more taxes, less spending, and weaker growth. And none of that bodes well for the pound.

The sell-off in 2022, after chancellor Kwasi Kwarteng delivered a budget of unfunded tax cuts, was certainly more aggressive than what we’ve seen this week. But long-term borrowing costs are now higher than in the Truss panic.

Kyle Rodda, senior financial market analyst at Capital.com, fears the tumble in UK asset prices could be a sign of another “simmering financial crisis”:

There’s a mini-crisis brewing in UK markets amidst a broad-based sell-off in the country’s assets. For no explicable reason aside from already known factors like weak growth, elevated inflation, and unsustainable fiscal settings, stocks, bonds and the Pound plunged, in moves reminiscent of the 2022 Truss meltdown.

The moves indicate a looming crisis of confidence in the UK and reflects expectations of ongoing and long-term economic malaise which will only be addressed by massive reform.

Dutch bank ING say that several factors are pushing up UK bond yields, including Labour’s spending ambitions, sticky inflation, higher US rates and supply pressures.

But in cheering news for the Treasury, IN’s senior european rates strategist Michiel Tukker is confident that we’re not facing a “sovereign crisis”.

Tukker told clients:

It’s important to note that the demand from foreign buyers remains strong, which reduces the repeat risks of a Liz Truss moment. So whilst rates can stay higher, we don’t expect any steep sell-offs on the back of sovereign risk.

Also, keep in mind that the Truss turmoil was exaggerated by a liquidity crunch among pension funds due to interest rate hedges suddenly moving against them. This time the move up is more gradual, which should prevent such a spiral higher in gilt yields.

The agenda

• 10am GMT: Eurozone retail sales for November

• 12.30pm GMT: Challenger survey of US job cuts in December

• 4pm GMT: Bank of England policymaker Sarah Breeden gives speech