For months, I’ve been watching UK gilt yields like a hawk. Gilts are the bonds Britain issues to fund its spending. Yields show how much interest we pay to persuade bond investors to buy them. Bond investors no longer trust us. They think Chancellor Rachel Reeves has lost control of the nation’s finances. The result? Gilt yields have shot up. They’re now at the highest level since 2008. That was the year of the global financial crisis. We’re staring at a nightmare on a similar scale.
Ten-year gilt yields have jumped from 4.25% at the start of March to 4.95% today. For gilts, that’s a massive move. It will cost us billions in extra interest. Incredibly, yields are now higher than during the Liz Truss crisis in autumn 2022, when her mini-Budget sent markets into meltdown. Under Truss, 10-year gilt yields peaked at 4.42%, comfortably below today’s level. The pound crashed, and Truss was gone within 49 days. The Tories never recovered. We’re back there again. Already.
Reeves constantly claims she’s “fixed the foundations” of the UK economy. That’s another whopper. Growth has stalled, businesses are collapsing, jobs are being destroyed and the tax burden is at a record high. She’s blown through her fiscal headroom twice, and looks set to do so again. Yet she still borrows like a drunken sailor on shore leave.
In February, markets expected Reeves to borrow £8.8billion. Instead, she racked up another £14.3billion of debt. She’s nowhere near balancing the books, despite all the extra tax revenue she’s squeezed out of households and businesses.
Our monthly interest bill was £5.5billion in February last year. This year, we paid £13billion. In a single month. These figures predate war in Iran. Reeves can’t blame that.
Today, Gary Howes of PoundSterlingLive warned what’s coming our way in this year’s autumn Budget. “More taxes are likely, and unfortunately for Reeves, avoiding spending cuts won’t be an option this time around.”
In her first two Budgets, Reeves has failed to cut spending, while raising taxes by almost £70billion. No prizes for guessing which lever she’ll pull again. Especially with Keir Starmer under pressure from left-wing leadership rivals like Angela Rayner and Andy Burnham, and Zack Polanski’s nutty Green Party. But higher taxes will only destroy growth further.
Reeves will point the finger at the Conservatives. And it’s true, they ran up a huge share of the debt (as did Labour’s Gordon Brown). But Labour opposed almost every attempt to control spending, attacking “austerity” at every turn. Plus the Tories had a pandemic on their plate.
For years, Britain has lived beyond its means. We’re still doing it now. And the bond markets can see it.
Ministers will also blame the Iran conflict. That’s clearly accelerating events. But it hasn’t created the underlying problem. It’s just exposed it. The UK now looks more vulnerable than its peers. Gilt yields are way above other major Western economies. Howes says the market is demanding a premium of the UK because “it thinks it is the most vulnerable country to an emerging inflationary spike”.
Incredibly, some lunatics on the left think we can simply ignore the bond markets. Andy Burnham does. Zack Polanski does. We can’t. The bond market is the only thing keeping us afloat. If it loses confidence in us, so-called ‘bond vigilantes’ will demand even more interest for lending to us. We’re seeing that now. Reeves is heading for disaster. And taxpayers will have to bail her out in the Budget. Again.
