Increases in gilt yields and decreases in sterling are still significantly less severe than during the run-up to and aftermath of the infamous Truss 2022 mini-budget. However, the market's reaction to the Reeves' debut is still negative.

The pound has weakened, and government bond yields—the interest rate the government pays on its debt—have increased—which is very bad.

This reaction is exactly the opposite of what chancellors hope for when they present their fiscal statements to Parliament. However, in retrospect, no one should be surprised by this outcome.

The new government has committed to significantly more borrowing than its predecessors, with plans to borrow approximately £140 billion more in the coming years. This is a typical Labour Government Strategy—Borrow Big, Tax Hard, Spend, Spend, Spend, and Forget Accountability!

This mega-money will have to be borrowed from financial markets. However, those financial markets are now re-evaluating their willingness to lend to the UK. There's still plenty of money to be squeezed out there, especially with relaxed fiscal rules.

01/11/2024

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