Budget: Hostile market response as chancellor suffers Halloween nightmare

Published

1 year ago

October 31, 2024

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First things first: don’t panic.

What you need to know is this. The budget has not gone down well in financial markets. Indeed, it’s gone down about as badly as any budget in recent years, save for Liz Truss’s mini-budget.

The pound is weaker. Government bond yields (essentially, the interest rate the exchequer pays on its debt) have gone up.

That’s precisely the opposite market reaction to the one chancellors like to see after they commend their fiscal statements to the house.

In hindsight, perhaps we shouldn’t be surprised.

After all, the new government just committed itself to considerably more borrowing than its predecessors – about £140bn more borrowing in the coming years. And that money has to be borrowed from someone – namely, financial markets.

But those financial markets are now reassessing how keen they are to lend to the UK.

The upshot is that the pound has fallen quite sharply (the biggest two-day fall in trade-weighted sterling in 18 months) and gilt yields – the interest rate paid by the government – have risen quite sharply.

This was all beginning to crystallise shortly after the budget speech, with yields beginning to rise and the pound beginning to weaken, the moment investors and economists got their hands on the budget documentation.

But the falls in the pound and the rises in the bond yields accelerated today.

This is not, to be absolutely clear, the kind of response any chancellor wants to see after a budget – let alone their first budget in office.

Indeed, I can’t remember another budget which saw as hostile a market response as this one in many years – save for one.

That exception is, of course, the Liz Truss/Kwasi Kwarteng mini-budget of 2022. And here is where you’ll find the silver lining for Keir Starmer and Rachel Reeves.

The rises in gilt yields and falls in sterling in recent hours and days are still far shy of what took place in the run up and aftermath of the mini-budget. This does not yet feel like a crisis moment for UK markets.

But nor is it anything like good news for the government. In fact, it’s pretty awful. Because higher borrowing rates for UK debt mean it (well, us) will end up paying considerably more to service our debt in the coming years.

And that debt is about to balloon dramatically because of the plans laid down by the chancellor this week.

And this is where things get particularly sticky for Ms Reeves.

In that budget documentation, the Office for Budget Responsibility said the chancellor could afford to see those gilt yields rise by about 1.3 percentage points, but then when they exceeded this level, the so-called “headroom” she had against her fiscal rules would evaporate.

In other words, she’d break those rules – which, recall, are considerably less strict than the ones she inherited from Jeremy Hunt.

Which raises the question: where are those gilt yields right now? How close are they to the danger zone where the chancellor ends up breaking her rules?

Short answer: worryingly close. Because, right now, the yield on five-year government debt (which is the maturity the OBR focuses on most) is more than halfway towards that danger zone – only 56 basis points away from hitting the point where debt interest costs eat up any leeway the chancellor has to avoid breaking her rules.

Now, we are not in crisis territory yet. Nor can every move in currencies and bonds be attributed to this budget.

Markets are volatile right now. There’s lots going on: a US election next week and a Bank of England decision on interest rates next week.

The chancellor could get lucky. Gilt yields could settle in the coming days. But, right now, the UK, with its high level of public and private debt, with its new government which has just pledged to borrow many billions more in the coming years, is being closely scrutinised by the “bond vigilantes”.

A Halloween nightmare for any chancellor.

Business

Direct trains from UK to Germany ‘one step closer’, but nothing yet on journeys to Berlin

Published

21 mins ago

December 4, 2025

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Direct trains from UK to Germany 'one step closer', but nothing yet on journeys to Berlin

The UK has come a “step closer” to having direct, high-speed rail connections to Germany, the Department for Transport has said.

A partnership between international train operator Eurostar and German national rail company Deutsche Bahn (DB) has “set the foundation” for a fast rail connection between Britain and Europe’s largest economy, the businesses announced on Thursday.

It means the companies are exploring options to offer direct services between London and Cologne and Frankfurt.

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Such direct services would mean reaching Cologne in four hours, and Frankfurt in less than five from the capital city.

At present, rail passengers have to change trains in Brussels to reach those cities. It takes at least five-and-a-half hours to reach Frankfurt, and four-and-a-quarter hours to arrive in Cologne.

The proposed services would use existing lines and infrastructure. Passengers would board a double-decker Eurostar in London, and be spared a change of trains on the continent.

The ambition to create such links had already been announced, as had a plan to allow direct rail travel from London to Geneva, but the partnership between DB and Eurostar had not.

Will it definitely happen?

Details and technicalities are yet to be worked out, with the German train company highlighting that any services are contingent upon “the necessary technical, operational, and legal prerequisites being met”.

“Implementation by individual railway companies is considered extremely difficult,” DB said.

“Joint partnerships are therefore crucial.”

What about Berlin?

Nothing was announced for a direct service to Berlin on Thursday, despite Transport Secretary Heidi Alexander singling out the benefits and prospect of journeys from London to the German capital in July.

“The Brandenburg Gate, the Berlin Wall and Checkpoint Charlie – in just a matter of years, rail passengers in the UK could be able to visit these iconic sights direct from the comfort of a train, thanks to a direct connection linking London and Berlin,” she said at the time.

Shorter journeys, like those to Frankfurt and Cologne, are seen as more commercially viable than the current 10-hour train journey time to Berlin.

Market studies conducted by Eurostar found travellers are comfortable with international rail journeys of up to six hours.

“Our research indicates that many would choose rail over air for trips within this timeframe,” Eurostar told Sky News. “This, combined with strong business and leisure demand on this route, is why we have prioritised London to Frankfurt.”

The Department for Transport said the focus on the two German cities was a commercial decision by Eurostar and DB, and the UK-Germany rail taskforce, established over the summer, could pave the way for further route announcements.

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Energy grid £28bn upgrade to add £108 to household bills

Published

13 hours ago

December 4, 2025

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Energy grid £28bn upgrade to add £108 to household bills

The energy regulator has confirmed plans for a massive upgrade to the UK’s energy grids, adding £108 to customer bills by 2031.

Ofgem said on Thursday that the £28bn investment over the next five years would bolster resilience in the transition to a renewable energy future and that much of the bill would be offset by increased efficiency.

It pointed to estimated savings for households of around £80 because of the planned investment in gas and power infrastructure, leaving a net additional contribution of £28.

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Ofgem said the £28bn sum formed part of an estimated £90bn to be invested in the energy networks by 2031, with “adaptive” funding arrangements helping to shield customers from volatility in the market.

Most of the funding announced on Thursday will go towards maintaining gas networks, which will remain a key source of energy as green power capacity is built up further.

“Investing now to maintain world-class resilience and expand grid capacity is the most cost-effective way to harness clean power, support economic growth and protect the country from gas price shocks like the one seen in 2022”, Ofgem said.

Then, Russia’s invasion of Ukraine and Europe’s refusal to buy Russian gas in response, meant that energy bills hit unprecedented levels and gave birth to the wider cost-of-living crisis as higher energy costs were passed on across the economy.

Ofgem made its announcement as costs of government energy policy and other upgrades make the biggest upwards contributions to household bills. However, the budget moved to take away some costs from April next year.

Ofgem boss Jonathan Brearley said: “The funding announced today will keep Britain’s energy network among the safest, most secure and resilient in the world. The investment will support the transition to new forms of energy and support new industrial customers to help drive economic growth and insulate us from volatile gas prices.

“But this is not investment at any price. Every pound must deliver value for consumers. Ofgem will hold network companies accountable for delivering on time and on budget, and we make no apologies for the efficiency challenge we’re setting as the industry scales up investment.

“We’ve built strong consumer protections into these contracts, meaning funds will only be released when needed and clawed back if not used. Households and businesses must get value for money, and we will ensure they do.”

A Department for Energy Security and Net Zero spokesperson said: “This government is taking action to bring down energy bills for families, with the budget taking an average £150 of costs off bills in April, and expanding our £150 Warm Home Discount to over six million families.

“Upgrading our gas and electricity networks after years of underinvestment is essential to keep the lights on and ensure energy security for our country. Without these plans, which were first set out under the previous government, costs would spiral and our security would be compromised.

“The only way to bring down bills for good and get off the fossil fuel rollercoaster is with this government’s mission to deliver clean homegrown that we control.”

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Stronger reforms called for over baby formula crisis

Published

15 hours ago

December 4, 2025

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Stronger reforms called for over baby formula crisis

The UK government is being urged to take even stronger action to tackle the ongoing crisis of families unable to afford baby formula milk.

The prime minister backed limited reforms to the market to help parents save money but will not yet support more radical changes.

Sir Keir Starmer confirmed support for better public health messaging to inform parents that cheaper brands are nutritionally equivalent when compared with the most expensive.

A ban on spending store loyalty points on baby formula will also be lifted.

They were among recommendations made by the Competition and Markets Authority which investigated the baby formula industry and described the price rises in recent years as unjustifiable.

In the House of Commons the prime minister said: “For too long parents have been pushed into spending more on infant formula.

“They were told they’re paying for better quality and left hundreds of pounds out of pocket.

“I can announce today that we’re changing that. We will take action to give parents and carers the confidence to access infant formula at more affordable prices, with clearer guidance for retailers on helping new parents use loyalty points and vouchers together.”

It comes two-and-a-half years after a Sky News investigation revealed the extreme measures families were taking to feed their babies.

Parents described how they had resorted to stealing to feed their infants, some were watering down formula milk or substituting it for condensed milk.

The British Pregnancy Advisory Service described the situation in 2023 as a “national scandal”.

Campaigners told Sky News the UK government needed to go further to address the crisis.

Co-founder of Feed UK Erin Williams told Sky News: “It is progress, they promised to look at this enormous nationwide problem and they have.

“At the moment women are still not routinely getting important information before giving birth – this should be given proactively to everybody and that will be a big win.

“The prime minister though needs to be tougher on the baby formula companies.

“Their marketing claims, their unjustified pricing – it’s stacked against families who just need to feed their babies safely.”

The UK government stopped short of accepting all of the recommendations made by the CMA.

More radical ideas such as a price cap on baby formula are not being considered.

Charities have also told Sky News the situations some families find themselves in have not eased.

Founder of the Hartlepool Baby Bank, Emilie De Bruijn, told Sky News the demand they see from desperate families is “constant and unmanageable”.

She said: “Parents are really feeling the pinch right now, and demands on baby banks are rising and it can feel quite relentless.

“We are pleased to see the extension of the National Breastfeeding Helpline alongside measures such as allowing parents to use points and vouchers.

“It is important that parents are supported to feed their children in whatever way they want and we hope that steps will continue to be taken to reduce the cost of formula and increase understanding that all brands are nutritionally the same.”