Borrowing Costs and Fiscal Challenges
Governments borrow money by selling bonds to investors like pension funds. In the UK, these are known as gilts. Rising yields indicate increased borrowing costs, which strain government finances. With the 10-year gilt yield surging, concerns over the government’s ability to meet fiscal targets have grown.
Chancellor Rachel Reeves defended her fiscal policy over the weekend, emphasizing her commitment to reducing debt and maintaining spending rules. However, critics question whether these targets are achievable without additional tax hikes or spending cuts.
Prime Minister Sir Keir Starmer backed Reeves on Monday, affirming confidence in her leadership despite economic challenges.
Economic Growth and Business Sentiment
Recent data shows the UK economy experienced zero growth between July and September, with further contraction in October. Businesses have expressed concerns over measures like the rise in employer National Insurance contributions and the National Living Wage, warning of potential job cuts and price increases.
Rupert Soames, chair of the Confederation of British Industry (CBI), described business confidence as “bruised” but not entirely lost. He criticized the Employment Rights Bill for potentially discouraging hiring, though unions argue it enhances worker protections.
Global and Domestic Impacts on Inflation
Globally, persistent inflation fears have been stoked by Trump’s rhetoric on tariffs and strong US economic data, which suggest interest rates may remain elevated. Domestically, economists like Emma Wall of Hargreaves Lansdown believe UK-specific Budget measures are also exacerbating inflationary pressures.
The government has outlined plans to stimulate growth, including making the UK a global hub for artificial intelligence. However, critics have labeled the proposals as “uninspiring,” citing broader concerns about economic management.
- External Link: BBC Report
- Internal Link: Pound UK borrowing costs
