Pound falls sharply and government gilt interest rates up after major budget tax rises
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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Kemi Badenoch has called for a national inquiry into the grooming scandal that took place across UK towns and cities, arguing one was “long overdue”.
The Tory leader said 2025 “must be the year that victims get justice” after it emerged that Jess Phillips, the safeguarding minister, had rejected calls from Oldham council for a public inquiry into child exploitation in the town.
In a post on X, the Tory leader wrote: “The time is long overdue for a full national inquiry into the rape gangs scandal.
“Trials have taken place all over the country in recent years but no one in authority has joined the dots. 2025 must be the year that the victims start to get justice.”
Ms Badenoch was joined in her calls by shadow safeguarding minister Alicia Kearns, who has written to Ms Phillips asking her to reverse the government’s decision regarding Oldham.
“We have asked for planned Conservative measures to be enacted, to reverse the Oldham refusal, and for a statutory inquiry into grooming and rape gangs,” she wrote.
Girls as young as 11 were groomed and raped across a number of towns in England – including Oldham, Rochdale, Rotherham and Telford – over a decade ago in a national scandal that was exposed in 2013.
The following year a report by Prof Alexis Jay revealed the scale of exploitation in Rotherham between 1997 and 2013 – where around 1,400 girls were abused – and the failure of police and social services to intervene.
It was followed by the statutory Independent Inquiry into Child Sexual Abuse (IICSA), also chaired by Prof Jay, who found in her final report published in 2022 that children were still being sexually exploited by networks in all parts of England and Wales in the “most degrading and destructive ways”.
The final report recommended that institutions that work with children should be required by law to report suspicions of child sexual abuse.
In a letter to Oldham Council dated October last year, Ms Phillips, the Labour MP for Birmingham Yardley, said that while she recognised the “strength of feeling” over the matter, she believed it was for “Oldham Council alone to decide to commission an inquiry into child sexual exploitation locally, rather than for the government to intervene”.
She added: “I welcome the council’s resolution to do so, as set out in your letter, and to continue its important work with victims and survivors.
“Should the council choose to proceed, I would look forward to the inquiry’s findings and ensuring that any lessons that can be learnt to improve the frontline response are adopted at a local and, where applicable, at a national level.”
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Children ‘still at risk’ of abuse in Rochdale
Ms Phillips has been criticised for her response by Conservative politicians, including former home secretary Suella Braverman, who accused the minister of “letting down victims”.
However, Ms Badenoch faced criticism on social media by Sammy Woodhouse, a survivor of sexual abuse in Rotherham, who said: “I’ve met with your party for 12 years about this when you were in power. I asked for an inquiry into every town and city, none of you cared. Now you need the vote you want to speak on it?”
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And Reform UK leader Nigel Farage said: “Talk is cheap. The Conservatives had 14 years in government to launch an inquiry.
“The establishment has failed the victims of grooming gangs on every level.”
An Oldham Council spokesman said: “Survivors sit at the heart of our work to end child sexual exploitation.
“Whatever happens in terms of future inquiries, we have promised them that their wishes will be paramount, and we will not renege on that pledge.”
A Labour spokesperson said: “Child sexual abuse and exploitation are the most horrendous crimes and the Home Office supports police investigations and independent inquiries to get truth and justice for victims.
“We have supported both the national overarching inquiry into child abuse which reported in 2022, and local independent inquiries and reviews including in Telford, Rotherham and Greater Manchester.
“This government is working urgently to strengthen the law so that these crimes are properly reported and investigated.”
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