The cost of government borrowing has fallen in early trade on Thursday, partly reversing a surge prompted by the chancellor's emotional appearance in the Commons the previous day. The yield on UK 10-year bonds fell to 4.53%, down from 4.61% at Wednesday's close - as markets reacted to the prime minister's comments that he worked "in lockstep" with Rachel Reeves. The pound, which also fell on Wednesday, recovered some ground to $1.3668, although it has not regained all the ground it lost. One analyst told the BBC financial markets seemed to be backing the chancellor, afraid that if she left her job then fiscal discipline would disappear. Will Walker Arnott, head of private clients at the bank Charles Stanley, told the Today programme it seemed like a "rare example of financial markets actually enhancing the career prospects of a politician". "I think the markets are concerned that if the chancellor goes then any fiscal discipline would follow her out the door and that would mean bigger deficits." Mohamed El-Erian, president of Queens' College, Cambridge, and chief economic adviser at Allianz, warned that markets were likely to remain on edge. "The minute you put a risk premium in the marketplace, it's very hard to take out," he told the Today programme. "I suspect that we will see some moderation, but we will not go back to where we were 24 hours ago."
UK borrowing costs fall as PM backs chancellor
TruthLens AI Suggested Headline:
"UK Government Borrowing Costs Decline Following Prime Minister's Support for Chancellor"
Bbc News
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TruthLens AI Summary
In early trading on Thursday, the cost of government borrowing in the UK experienced a decline, partially reversing the previous day's increase that followed the chancellor's emotional address in the House of Commons. The yield on UK 10-year bonds decreased to 4.53%, down from 4.61% at the close of Wednesday. This shift came as a response to Prime Minister Rishi Sunak's remarks indicating his strong support for Chancellor Rachel Reeves, stating that he was working 'in lockstep' with her. Additionally, the British pound, which faced a dip on Wednesday, showed signs of recovery, rising to $1.3668, although it has not fully regained its previous strength. Analysts noted that financial markets appeared to be rallying behind the chancellor, with concerns that her potential departure would lead to a loss of fiscal discipline and increased deficits in government spending. Will Walker Arnott, head of private clients at Charles Stanley, described the situation as a unique instance where financial markets seemed to bolster a politician's career prospects due to their apprehension over the implications of a leadership change in the Treasury.
Despite the positive movement in borrowing costs, experts like Mohamed El-Erian cautioned that market volatility is likely to persist. He emphasized that once a risk premium is introduced into the market, it becomes challenging to eliminate it completely. El-Erian suggested that while some moderation in borrowing costs could be expected, the market would not return to its previous state before the surge in yields. The overall sentiment among market participants indicates a cautious optimism, yet a recognition that the economic landscape remains fragile. As the government navigates these financial challenges, the interplay between political stability and fiscal responsibility will be crucial in shaping both market reactions and the broader economic outlook for the UK.
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