BusinessBudget investors' reaction 'very different' to Liz Truss

Budget investors’ reaction ‘very different’ to Liz Truss

-

- Advertisment -spot_img


Getty Images Female trader with long hair and glasses sits at keyboard in front of screensGetty Images

Rachel Reeves’ Budget is “very, very different” to the Liz Truss mini-Budget of two years ago, according to a senior government minister.

Chief Secretary to the Treasury Darren Jones’s comments were designed to reassure markets following a rise in the cost of government borrowing and a fall in the pound in the wake of Wednesday’s Budget.

The amount the government has to pay lenders has risen after the chancellor announced a big increase in government borrowing to finance spending projects, sparking fears it may need to raise even more money.

Jones told the BBC it had put in place new rules to make sure spending on public services was paid for by tax receipts “not borrowing every single month”.

He said investors always reacted to Budgets because they “present a whole load of new information”.

“We’ve all got a bit of anxiety from what happened when Liz Truss was in government.

“We’ve got strong fiscal rules in place so that day-to-day spending on public services is paid for by tax receipts, not borrowing every single month, which is what the last government did, and we’ve got a strong investment rule that means that while we’re investing in the country, debt is falling as a share of the size of the economy.”

The interest rate – the so-called yield – the government has to pay lenders when it borrows money from them over a 10-year period, for example, climbed to its highest level for a year on Thursday before falling back on Friday.

This matters because not only does it mean the government will have to pay more to borrow, but bond yields are also used as a guide for setting the rates on everyday loans and mortgages.

However, it is important to put the latest market movements in context.

Since Wednesday the effective interest rate on government borrowing has gone up by just under a quarter of a percentage point and the pound had gone down by less than a percentage point.

The moves are about a tenth of the size of those seen after the mini-Budget.

For example, the pound is down 0.8% against the dollar, to a two-month low.

By this stage after the mini-Budget it was down 8% against the dollar – to an all-time low.

There has also been a wider rise in borrowing costs over the past month, but that has been a global movement, led by the US.

The jump in how much the government has to pay to borrow is a signal that investors regard lending it money as being a bigger risk.

On Thursday, Sir Keir Starmer’s spokesperson said there had been reaction from “bodies such as the IMF welcoming [the government’s] approach”.

In the Budget, Reeves announced nearly £70bn of extra spending a year, funded by tax increases for business and extra borrowing.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said the investor reaction had also been sparked by an expecation that interest rate cuts would now be scaled back, given forecasts that the Budget could push up inflation over the next two years.

“Financial markets are now not expecting rates to fall below 4% until 2026,” she said.



Source link

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest news

Rashford, MLS in Tuchel’s first England squad

Thomas Tuchel has handed Marcus Rashford a shock recall in his first England squad, which also includes call-ups...

Germany’s Hugo Boss expects stable sales in 2025 amid volatile markets

Germany’s fashion and lifestyle company Hugo Boss has anticipated sales in 2025 to remain broadly in line with...

Historic Photos of the Cats’ Meat Men in Victorian London

These historic photos show the nostalgic cats’ meat men traders that...

Witness says missing Pitt student rescued from powerful wave — then vanished

A man who might've been the last person to see Sudiksha Konanki, a University of Pittsburgh student who...
- Advertisement -spot_imgspot_img

Must read

New country album pays homage to Tom Petty

New country album pays homage to Tom Petty...

At least 10 shot dead as section of Kenyan parliament set on fire

At least ten people were shot dead in...
- Advertisement -spot_imgspot_img

You might also likeRELATED
Recommended to you