Pound falls as borrowing costs hit highest since 2008
The pound has fallen to its lowest level in nine months after the British government’s borrowing costs continued to rise.
The fall came as Britain’s 10-year borrowing costs reached their highest level since the 2008 financial crisis, when bank borrowing almost came to a halt.
Economists have warned that rising costs could lead to further tax increases or cuts to spending plans as the government tries to meet its self-imposed borrowing target.
The government said it would not comment ahead of its independent forecaster’s official borrowing forecast in March.
“I’m obviously not going to go ahead … it’s up to the OBR (Office for Budget Responsibility) to make their forecast.”
The Prime Minister’s official spokesperson said, “Stability in public finances is a harbinger of economic stability and economic growth.”
Shadow Chancellor Mel Stride claimed that the Chancellor’s plans for significant spending and borrowing from the budget were “making it more expensive for the government to borrow”.
“We should be building a more resilient economy, not raising taxes to compensate for fiscal inefficiency,” he said in a post on X.
Gabriel McCann, head of macroeconomics at Sad Rabbit Investments, said the rise in borrowing costs had “effectively wiped out Reeves’ fiscal headroom, threatening to derail Labour’s investment promises and potentially cost A painful recalibration of plans is required.”
The warning comes after borrowing costs have risen for more than 30 yearsThis is the highest level of 27 years on Tuesday.
Meanwhile, the pound fell 1.1% against the dollar to $1.233, its lowest level since April last year.
The government generally spends more than it taxes. To make up the difference he borrows money, but has to pay it back – with interest.
One of the ways it can borrow money is by selling financial products called bonds.
Globally, government borrowing costs have risen in recent months amid investor concerns over US President-elect Donald Trump’s plans to impose new tariffs on goods entering the US from Canada, Mexico and China. The plan will increase inflation.
Laith Khalaf, head of investment analysis at AJ Bell, said Chancellor Rachel Reeves’ budget in October, which increased borrowing, may have had little impact, but said the increase in the UK was similar to the US.
“Higher yields in the UK put pressure on government finances and increase the risk that Reeves will return with another tax-raising budget,” he said.
But he also said the current rise in borrowing costs could be “a storm in a teacup that fizzles out quickly.”
The official forecaster, the Office for Budget Responsibility (OBR), will next month begin the process of updating its forecast on government borrowing which will be presented to Parliament at the end of March.
