The pound and UK government borrowing costs have stabilised after a turbulent few days.
The pound rose slightly to $1.22 early on Tuesday after having fallen to around $1.21 on Monday, its lowest level since November 2023, while government borrowing costs dipped slightly from their recent highs.
Borrowing costs have been rising for many countries across the world, but some have argued that decisions made in the Budget appear to have made the UK more vulnerable.
The recent market moves have put Chancellor Rachel Reeves under pressure. On Monday, Prime Minister Sir Keir Starmer said she was doing an “amazing job” but the Conservatives said she was “hanging on by her fingernails”.
Reeves faces questions in the Commons this afternoon for the first time since she returned from a trip to China at the weekend.
She said the trip would improve economic ties with Beijing, but the Conservatives said she had “fled” during a time of uncertainty in financial markets.
Governments generally borrow money by selling bonds to big investors, such as pension funds. UK government bonds are known as gilts.
The yield on the 10-year gilt – the interest rate at which the government pays back a decade-long loan to investors – dropped marginally to 4.87% on Tuesday, having risen to nearly 4.9% on Monday, its highest level for 17 years.
Meanwhile, the 30-year gilt yield edged down to 5.42% from 5.44% on Monday, its highest in 27 years.
Government debt costs in Germany, France, Spain and Italy have also been rising. Experts say investors are predicting US president-elect Donald Trump’s tariffs will increase US inflation, meaning interest rates will remain high there and elsewhere.
“It’s been a relatively dramatic couple of weeks for the gilts markets and for the pound,” Nina Skero, chief executive of the Centre for Economics and Business Research, told the BBC.
“It’s been somewhat of a worldwide phenomenon, but it seems to be particularly intense in the UK.”
She pinned the UK’s specific problems on a “delayed response to the very heavy tax and spend in the Budget”, adding that “we’re going to have to wait some months, maybe even some quarters, to see the real impact”.
However, Ms Skero added the 2022 market reaction to former Prime Minister Liz Truss’ “mini” Budget was still greater in terms of “magnitude”.
“And that situation was entirely UK-focused.”
