Government bond prices plummeted the most since 2022 and following Sir Keir Starmer refusing to confirm the Chancellor’s job is safe the pound tumbled.
During Prime Minister’s Questions (PMQs) on Wednesday Rachel Reeves looked “absolutely miserable” and was seen crying.
On Wednesday Government’s 10-year gilt soared by 22 basis points to around 4.68% and investors dumped UK debt.
This is a largest one day increase since October 2022 following the former Prime Minister Liz Truss mini-Budget, she lost her job shortly after.
Domestic mid-cap stock fell and the pound dropped by more than 1% to $1.3589.
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Gordon Shannon, portfolio manager at Twentyfour Asset Management in London said, “(The welfare U-turn) is signalling that the Labour Party is a lot less concerned about what the gilt market thinks.
I would have thought it was seared into politicians’ memories what happened to Liz Truss.”
“I continue to view it as you’ve breached your own commitments and that sets fire to your credibility in a world where there is increasing focus on the solvency positions of governments.”
Chris Scicllllluna, head of economic research at Daiwa Capital Markets in London said, “Clearly the market is revaluating the outlook for fiscal policy and hence the significant steepening in the gilt curve.
“The vote in the House of Commons gives reason to think again about the likely outlook for public borrowing.
“The market has understood for some time that the government was off track on borrowing and was anticipating corrective measures in the budget but if markets continue to move in the direction we see today, it might have to make some announcements on the revenue side than on public expenditure cuts.
The BoE is obviously reviewing QT and they will probably bring an end to asset sales in the autumn,” Global Banking & Finance review reported.
Neil Wilson, UK investor strategist at Rabobank London said, “Gilt yields were moving up but started to spike during (Prime Minister’s Questions) as Reeves looked utterly shaken.
