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The pound has fallen sharply after the chancellor announced the biggest tax rises in a generation.

Over the last three days, sterling has dropped by 1.2% (in trade weighted terms) – the biggest fall in 18 months.

Between around 1.30pm and 5.30pm today, versus the dollar, it dropped from about 129.9c to the pound to about 128.6c. In the same period, against the euro, it went from 119.3c to the pound to about 118.4c.

In addition, yields for 10-year UK bonds – the cost or interest rate charged for long-term government borrowing – have gone past 4.5% for the first time in a year.

Ed Conway, Sky News’s economics and data editor, said those yields are “pretty much halfway towards the danger zone” – a zone identified by the Office for Budget Responsibility (OBR).

However, he said other European bonds had risen, too. “But the UK does seem to be moving faster than most of the others,” he added.

While cautioning that the budget is still very new, Conway said the “upshot” is that Rachel Reeves’s “room for manoeuvre” is already diminishing “because of market moves”.

Markets are reacting in “quite a violent way”, Conway said.

“It’s really unusual to see this after a budget, and that will have a bearing on how much this government will be able to afford in the future,” he added.

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‘Raising taxes was not an easy decision’

A sudden rise in the yields of 10-year UK bonds followed Liz Truss’s disastrous “mini-budget” of September 2022, which led to a surge in the cost of borrowing for ordinary consumers, while the pound slumped to a 37-year low against the dollar.

It is “certainly not like that at the moment”, Conway said.

Nonetheless, market movements will be “enough to really concern people at the Treasury”, he added, “because it suggests that a lot of traders are looking at how much money this government is borrowing, and they’re saying: ‘Hang on, maybe we’re going to charge you more’.”

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The pound has weakened and gilt yields – the cost of borrowing by the UK government – has increased in response to the budget, which saw Rachel Reeves introduce the biggest tax hike in a generation.

While Conway said it does not feel like a “crisis point”, he said the “calculus for this government” may be changing.

Jack Meaning, UK chief economist at Barclays, said market reaction was “materially different” to what happened in 2022.

Bond yields since Ms Reeves’s budget are up by about 0.3%, while in 2022 the rise was about 1.5%, he said.

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Reeves acting like ‘compulsive liar’

The conversation Barclays is having with its customers is also different to that in 2022, Mr Meaning added.

At that time, people were wondering whether a “big crisis point” had been reached.

This time, he said the focus is on comments from the OBR about a potential rise in inflation, and the potential knock-on effect as the Bank of England makes decisions on interest rates in the next few months.

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The prime minister’s official spokesperson refused to talk about bond prices.

“We don’t comment on market movements,” they said.

“The chancellor has been very clear that first and foremost, this budget has been about restoring fiscal stability, and she’s outlined two new robust fiscal rules, which put public finances on a sustainable path.”

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White House reportedly mulling pardon for Binance founder CZ

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White House reportedly mulling pardon for Binance founder CZ

White House reportedly mulling pardon for Binance founder CZ

Binance co-founder Changpeng Zhao said that being considered for a presidential pardon from Trump would be “great news if true.”

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US and China soften trade rhetoric, giving analysts hope of market rebound

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US and China soften trade rhetoric, giving analysts hope of market rebound

US and China soften trade rhetoric, giving analysts hope of market rebound

Tensions between the two countries appear to have cooled off on Sunday, as representatives from both sides signal a willingness to negotiate.

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Fears Trump may lose focus after praise for Gaza peace deal at Egypt summit

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Britain has been playing a role behind the scenes of Trump's deal between Israel and Hamas | Beth Rigby

Sir Keir Starmer will on Monday join world leaders at a historic summit in Egypt to witness the signing of the Gaza peace plan to end two years of conflict, bloodshed and suffering, that has cost tens of thousands of lives and turned Gaza into a wasteland.

Travelling over to Egypt, flanked by his national security advisor Jonathan Powell, the prime minister told me it was a “massive moment” and one that is genuinely historic.

US President Donald Trump moved decisively last week to end this bloody war, pushing Israeli Prime Minister Benjamin Netanyahu and Hamas into a ceasefire as part of his 20-point peace plan.

Pic: AP
Image:
Pic: AP

In the flurry of the following 48 hours, Mr Starmer and another twenty or so leaders were invited to Egypt to bear witness to the signing of this deal, with many of them deserving some credit for the effort they made to bring this deal around, not least the leaders of Qatar, Egypt and Turkey, who pressed Hamas to sign up to this deal.

On Monday, the remaining 20 living hostages are finally set to be released, along with the bodies of another 28 who were either killed or died in captivity, and aid is due to flow back into a starving Gaza.

Some 1,200 Israelis were killed on 7 October 2023, with another 250 taken hostage. In the subsequent war, most of Gaza’s two million population has been displaced. More than 67,000 Gazans have been killed, according to Palestinian health officials

Then, the signing ceremony is due to take place on Monday afternoon in Sharm el-Sheikh. It will be a momentous moment after a long and bloody war.

More on Israel-hamas War

But it is only just the beginning of a long process to rebuild Gaza and try to secure a lasting peace in the region.

The immediate focus for the UK and other nations will be to get aid into Gaza with the UK committing £20m on Monday for water, sanitation and hygiene services for Gazans.

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Humanitarian aid rolls into Gaza

But the bigger focus for the UK and other European allies is what happens after the hostages are released and Israel withdraws its troops.

Because what happens next is a much bigger and more complicated task: rebuilding Gaza; turning it into a terrorist-free zone; governing Gaza – the current plan is for a temporary apolitical committee; creating an international stabilisation force and all the tensions that could bring about – which troops each side would allow in; a commitment for Israel not to occupy or annex Gaza, even as Netanyahu makes plain his opposition to that plan.

The scale of the challenge is matched by the scale of devastation caused by this brutal war.

The prime minister will tomorrow set out his ambition for the UK to play a leading role in the next phase of the peace plan.

Back home the UK is hosting a three-day conference on Gaza’s recovery and reconstruction.

Last week, France hosted European diplomats and key figures from Middle Eastern countries, Egypt, Jordan, Saudi Arabia and Qatar and later this week, the German chancellor is hoping to organise a conference on the reconstruction of Gaza with the Egyptians.

But in reality, European leaders know the key to phase two remains the key to phase one: and that’s Donald Trump.

As one UK figure put it to me over the weekend: “There is lots of praise, rightly, for the US president, who got this over the line, but the big challenge for us post-war is implementing the plan. Clearly, Arab partners are concerned the US will lose focus”.

The prime minister knows this and has made a point, at every point, to praise Mr Trump.

Bridget Phillipson and Mike Huckabee. Pics: Sky/AP
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Bridget Phillipson and Mike Huckabee. Pics: Sky/AP

His cabinet minister Bridget Phillipson learned that diplomatic lesson the hard way on Sunday when she was publicly lambasted by the US ambassador to Israel Mike Huckabee for suggesting to my colleague Trevor Phillips that the UK “had played a key role behind the scenes” and failed to mention Mr Trump by name.

“I assure you she is delusional,” tweeted Governor Huckabee. “She can thank @realDonaldTrump anytime just to set the record straight”.

On Monday, leaders will rightly be praising Mr Trump for securing the breakthrough to stop the fighting and get the remaining hostages home.

People hug next in Hostages Square. Pic: Reuters
Image:
People hug next in Hostages Square. Pic: Reuters

But this is only the beginning of a very long journey ahead to push through the rest of the 19-point plan and stop the region from falling back into conflict.

Britain has, I am told, been playing a role behind the scenes. The PM’s national security adviser Mr Powell was in Egypt last week and has been in daily touch with his US counterpart Steve Witkoff, according to government sources. Next week the King of Jordan will come to the UK.

Part of the UK’s task will be to get more involved, with the government and European partners keen to get further European representation on Trump’s temporary governance committee for Gaza, which Tony Blair (who was not recommended or endorsed by the UK) is on and Mr Trump will chair.

The committee will include other heads of states and members, including qualified Palestinians and international experts.

As for the former prime minister’s involvement, there hasn’t been an overt ringing endorsement from the UK government.

It’s helpful to have Mr Blair at the table because he can communicate back to the current government, but equally, as one diplomatic source put it to me: “While a lot of people in the Middle East acknowledge his experience, expertise and contact book, they don’t like him and we need – sooner rather than later – other names included that Gulf partners can get behind.”

On Monday it will be the US, Egypt, Qatar and Turkey that sign off on the peace plan they directly negotiated, as other Middle Eastern and European leaders, who have flown into Sharm el-Sheikh to bear witness, look on.

But in the coming days and weeks, there will need to be a big international effort, led by Mr Trump, not just to secure the peace, but to keep it.

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