Bond markets were sent into frenzy and the pound fell after the Chancellor’s tears in the Commons – drawing comparisons with the disorderly reaction to Liz Truss’s catastrophic mini-budget.
UK ten-year borrowing costs surged close to 4.7 per cent as Sir Keir Starmer declined to offer Rachel Reeves his support as she sat beside him at the Prime Minister’s questions.
The pound dropped by one per cent against the dollar to less than $1.36.
Even after Ms Reeves’ poor economic management, traders are probably worried that any Labour replacement may increase financial instability.
The spike took yields on ten-year government bonds – effectively the rate investors charge to lend to the government – to the highest level in about a month.
And the one-day movement was the worst since October 2022, after the Truss mini-Budget.
Traders were already on edge after Labour’s humiliating climbdown on welfare which blew a £5 billion void in the Chancellor’s Budget plans.
And though bond yields came down nearer to 4.6 per cent – after the PM eventually offered his support and the Chancellor’s tears were described as a personal matter – they were still well above the levels seen at the start of the day.
Neil Wilson, UK investor strategist at Saxo Markets, said: ‘Is Liz Truss back? Hard to imagine the chancellor will last much longer.
‘She will pay the price for sticking to her fiscal rules and having a party that won’t let her do so without hiking taxes because they refuse to grasp the benefits nettle.
‘The market is turning vigilante here and showing a distinct lack of confidence and implication that we could see more borrowing; pricing in higher political risk premium.
‘This kind of market reaction is everything Labour hoped to avoid – they staked so much on their fiscal credibility but it’s all gone up in a backbench revolt.’
Kathleen Brooks, research director at XTB, said: ‘The market is pricing in the possibility of a replacement chancellor with a more left-leaning agenda, which is spooking the bond market and waking up the bond vigilantes from their slumber.’
Nigel Green, chief executive of financial advisors deVere Group, said: ‘The echoes of Truss in 2022 are unmistakable.
‘Back then, it was a reckless mini-budget that shattered market confidence. This time, it’s a government lurching from one policy retreat to another, raising serious doubts about fiscal control and political authority.’
The only way to restore confidence is to call a general election, and even then, I’m not confident that will work.
To stop this deterioration, we need someone with a strong backbone.
The markets will want a culling, and I believe that confidence restored will now be demanded by the Bank of England – this is going to hurt.
I think that Starmer and Reeves will be gone very soon, and for all those who voted Labour – what have you done?
If Reform gets to govern the UK with its economically illiterate plan they will also crash the economy. Nigel Farage is nowhere near ready to govern the UK.
If you think that Labour is unfit to govern, how do you actually believe Reform will cope with zero experience?
Labour is the worst I’ve seen in all my years of being on this planet. They are set to annihilate our financial markets, businesses, education system, legal justice system and our national culture. They are vultures, and they’re feeding on the bones of what the Tories left behind, and anyone who believes that Starmer and his buddies are better than any other PM in living memory needs to just give their heads a wobble.
THE MONTHLY MOSQUITO 