Labour’s Leaders Are Stalked by Bond Vigilantes
Nothing risks derailing Britain’s new government quicker than problems in the gilt market.
A legacy of former UK Prime Minister Liz Truss, shown here speaking in the US, is a skittish gilt market.
Photographer: Anna Moneymaker/Getty Images North AmericaOf all the problems Labour Chancellor of the Exchequer Rachel Reeves inherited from the Tories — health and housing, to name just two — there’s one that can undermine her entire agenda: a skittish and apprehensive bond market.
Investors are charging the UK under the Labour government more to borrow than they demand from the US, a relatively rare historical anomaly. A third of the way through the fiscal year, government borrowing has already overshot Office for Budget Responsibility projections by £13 billion ($17 billion). This is not just driven by higher spending but also worryingly a lower tax take — even though first-half growth was the highest in the Group of Seven. OBR growth forecasts are already much higher than economists' consensus, putting Reeves in a tight spot.