Bond yields are soaring to their highest levels in almost 30 years and sterling is sliding. The government’s economic strategy is facing its first real test, and where is the chancellor? So far Rachel Reeves has been silent, preparing for a jaunt to China. At some point she will have to address the markets – or risk turning a round of jitters into a full-blown crisis.
Over the last few days, the markets have turned decisively on the UK. Yesterday, the yield on 10-year gilts hit its highest level since the financial crisis of 2008, while the yield on the 30-year gilt hit the highest level for 30 years. The UK is now paying more to service its debt than Greece, and very soon that will mean rising mortgage rates, and more companies going bankrupt. There is no mystery about what has happened. Investors have worked out that Reeves’s Budget, with its mix of big increases in borrowing, and higher company taxes, has failed, and will trap the economy in stagnation. The result? They are demanding more to lend money to the UK.
The Treasury put out a hurried statement last night, trying to reassure the markets that everything will work out fine, but Reeves herself has said nothing. She is planning to fly out to China this weekend, no doubt leaving a couple of interns to look after Britain’s economy. But this is not good enough. Sooner or later Reeves will have to address the markets and convince investors she has a plan to keep spending under control and reboot growth. The markets thrive on rumours and gossip, and the longer she stays silent, the easier it will be for traders to spread all kinds of wild speculation. They will keep piling more pressure on gilts, and reaping easy profits.
Reeves’s advisers may worry that their robotic boss, known for her impressive impersonation of ‘Dalek with a bad cold’, may make things worse by commenting. She would be tempted to boast about her time at the Bank of England, or tout her credentials as an economist, or drone on about ‘Tory black holes’. But even that may be better than silence. The bond market jitters won’t go away if she simply ignores them. The rout will only worsen.
Katy Balls, Kate Andrews and James Heale unpack the challenges facing Rachel Reeves in the latest Coffee House Shots podcast:
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