Plenty of concern about UK gilt yields and economic health but this isn’t a Liz Truss moment

Published

5 months ago

January 8, 2025

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How worried should Rachel Reeves be about the fact that the interest rates on government bonds have leapt to the highest level in more than a quarter of a century?

More to the point, how worried should the rest of us be about it?

After all, the interest rate on 30-year government bonds (gilts, as they are known) hit 5.37% today—the highest level since 1998. The interest rate on the benchmark 10-year government bond is also up to the highest level since 2008.

Higher government borrowing rates mean, rather obviously, that the cost of all that investment Keir Starmer has promised in the coming years will go up. And since these rates reflect longer-term expectations for borrowing costs, in practice it means everything else in this economy will gradually get more expensive.

Money blog: Billionaire Premier League owner ‘thinking of leaving UK’ after budget

There are short-term and long-term consequences to all of this. In the short run, it means it will be harder for Ms Reeves to meet those fiscal rules she set herself. Back at the budget, she left herself a (in fiscal terms) paper-thin margin of £9.9bn not to overshoot on borrowing vs her new rules.

According to Capital Economics, based on recent market moves, that margin might now have been eroded down to around £1bn.

And, given that’s before the Office for Budget Responsibility (OBR) has even decided on changes to its forecasts, it’s now touch and go as to whether Ms Reeves will meet her fiscal rules. As my colleague Sam Coates reported this week, the upshot is the Treasury is poised to pare back its spending plans in the coming years – a depressing prospect given the chancellor only just set them. But that won’t be clear until the OBR’s updated forecasts are published in March.

However, fiscal rules and political embarrassments are one thing – the bigger picture is another. And that bigger picture is that the UK is being charged higher interest rates by international investors to compensate them for their concerns about our economic future – about rising debt levels, about the threat of higher inflation and about fears of sub-par growth in the years to come.

How does this compare to the Liz Truss mini-budget?

But perhaps the biggest question of all is whether, what with long-term bond yields higher now (over 5.2%) than the highs they hit in October 2022, after the infamous mini-budget (4.8%), does that mean the economy is in even more of a crisis than it was under Liz Truss?

The short answer is no. This is nothing like the post mini-budget aftermath. Investors are concerned about UK debt levels – yes. They are repricing our debt accordingly. There was even a moment for a few days after the budget last autumn when the yields on UK bonds were behaving in an erratic, worrying way, rising more than most of our counterparts.

But – and this is the critical bit – we saw nothing like the levels of panic and concern in markets that we saw after the mini-budget. But don’t just take it from me. Consider two data-based metrics that are pretty useful in this case.

The first is to consider the fact that back in October 2022 it wasn’t just that the interest rates on government bonds were rising. It was that the pound was plummeting at the same time. That’s a toxic cocktail – a signal that investors are simply pulling their money out of the country. This time around, the pound is pretty steady, and is far stronger than it was in late 2022, when it hit the lowest level (against a basket of currencies) in modern history.

Is this just a UK problem?

The second test is to ask a question: is the UK an outlier? Are investors looking at this country and treating it differently to other countries?

And here, the answer is again somewhat reassuring for Ms Reeves. While it’s certainly true that UK government bond yields are up sharply in recent weeks, precisely the same thing is true of US government bond yields. Even German yields are up in recent weeks – albeit not as high as the US or UK.

In other words, the movements in bond yields don’t appear to be UK-specific. They’re part of a bigger movement across assets worldwide as investors face up to the new future – with governments (including the UK and the US under Donald Trump) willing to borrow more and spend more in the future. As I say, that’s somewhat reassuring for Ms Reeves, but I’m not sure it’s entirely reassuring for the rest of us.

One way of looking at this is by measuring how much the UK’s bond yields deviated from those American and German cousin rates in recent months. And while there was a point, a few days after Ms Reeves’ Halloween budget, when UK bond yields were more of an outlier than they historically have been after fiscal events, in the following weeks the UK stopped being much of an outlier. Yes, it was being charged more by investors, but then given the budget involved large spending and borrowing increases, that’s hardly surprising.

Now compare that with what happened after the mini-budget, when the UK’s bond yields deviated from their counterparts in the US and Germany more than after any other fiscal event in modern history – a terrifying rise which only ended after Kwasi Kwarteng stood down. Only when Ms Truss resigned were they back in what you might consider “normal” territory.

Now, it’s hard to compare different historical moments. The mini-budget was happening at a tense moment in financial markets, with the Bank of England poised to reverse its quantitative easing. Not all of the roller coaster can be attributed to Ms Truss. Even so, comparing that period to today is night and day.

Investors are not exactly delighted with the UK’s economic prospects right now. They’re letting this be known via financial markets. But they’re certainly not horrified in the way they were after the mini-budget of 2022.

Business

Harrods plots legal action against estate of former owner al-Fayed

Published

1 day ago

June 14, 2025

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Harrods plots legal action against estate of former owner al-Fayed

Harrods is preparing to take legal action against the estate of its former owner, Mohamed al-Fayed, as the multimillion-pound legal bill for compensating his sexual abuse victims continues to escalate.

Sky News has learnt that the Knightsbridge department store, which has been owned by a Qatari sovereign wealth fund since 2010, plans to file a so-called passing-over application in the High Court as early as next week.

The intention of the application is to secure the removal of Mr al-Fayed‘s estate’s current executors, and replace them with professional executors to administer it instead.

Professional executors would be expected to investigate the assets and liabilities of the estate, while Harrods insiders claimed that the current executors – thought to be close family members of the deceased billionaire – had “ignored” correspondence from its lawyers.

Sources close to Harrods said the passing-over application paved the way for it to potentially seek to recover substantial sums from the estate of the Egyptian tycoon as it contends with a compensation bill likely to run to tens of millions of pounds.

In a statement issued to Sky News on Saturday, a Harrods spokesperson said: “We are considering legal options that would ensure that no doors are closed on any future action and that a route to compensation and accountability from the Fayed estate remains open to all.”

Mr al-Fayed is believed to have raped or sexually abused hundreds of women during his 25-year tenure as the owner of Harrods.

He died in 2023, since when a torrent of details of his abuse have been made public by many of his victims.

Earlier this year, Sky News revealed details of the compensation scheme designed by Harrods to award six-figure sums to women he abused.

In a form outlining the details of the Harrods redress scheme overseen by MPL Legal, which is advising the department store, it referred to the potential “for Harrods to recover compensation paid out under this Scheme from Mohamed Fayed’s estate”.

“You are not obliged to assist with any such claim for recovery,” the form told potential claimants.

“However, if you would be willing to assist Harrods including potentially by giving evidence against Fayed’s estate, please indicate below.”

This weekend, there appeared to be confusion about the legal representation of Mr al-Fayed’s estate.

In March, the BBC reported that Fladgate, a UK-based law firm, was representing it in an article which said that women who worked for him as nannies and private air stewards were preparing to file legal claims against the estate.

This weekend, however, a spokesman for Fladgate declined to comment on whether it was acting for Mr al-Fayed’s estate, citing confidentiality restrictions.

A source close to the law firm, meanwhile, insisted that it was not acting for the estate.

KP Law, another law firm acting for some al-Fayed abuse survivors, has criticised the Harrods-orchestrated process, but has itself faced questions over proposals to take up to 25% of compensation awards in exchange for handling their cases.

Harrods insiders said there was a growing risk that Mr al-Fayed’s estate would not be responsibly administered given that the second anniversary of his death was now approaching.

They added that as well as Harrods itself seeking contribution for compensation paid out for Mr al-Fayed’s abuse, its legal action would also potentially open way for survivors to claim directly against the estate.

Victims with no direct connection to Harrods are not eligible for any compensation through the store’s own redress scheme.

Even if Harrods’ passing-over application was approved by the High Court, any financial recovery for the department store would be subject to a number of additional legal steps, sources said.

“The passing-over action would achieve the goals of acknowledgement and accountability from the estate for survivors who don’t have the resource to undertake a passing-over application themselves,” an insider said this weekend.

Business

High street lender Metro Bank receives takeover approach

Published

1 day ago

June 14, 2025

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High street lender Metro Bank receives takeover approach

The high street lender Metro Bank has been approached about a private equity-backed takeover in a move that could lead to the disappearance of another company from the London Stock Exchange.

Sky News has learnt that Metro Bank was approached in the last fortnight about an offer to take it private spearheaded by the financial services-focused buyout firm Pollen Street Capital.

Pollen Street is one of the major shareholders in Shawbrook, the mid-sized bank which in the past has approached Metro Bank about a merger of the two companies.

In recent months, Shawbrook’s owners have stepped up efforts to identify a prospective corporate combination, holding tentative talks with Starling Bank about a £5bn tie-up, while also drawing up plans for a stock market listing.

The takeover approach to Metro Bank comes as it puts a traumatic period in which it came close to insolvency firmly behind it.

In November 2023, the lender was rescued through a £925m deal comprising £325m of equity – a third of which was contributed by Jaime Gilinski Bacal, a Colombian billionaire – and £600m of new debt.

Mr Gilinski now holds a near-53% stake through his investment vehicle, Spaldy Investments, and sits on the company’s board.

Since the bailout deal, Metro Bank has cut hundreds of jobs and sold portfolios of loan assets, at the same time as chief executive Daniel Frumkin has improved its operating performance.

Shares in Metro Bank have more than trebled in the last year as its recovery has gathered pace.

On Friday, the stock closed at 112.2p, giving it a market capitalisation of just over £750m.

At one point in 2018, the lender – which promised to revolutionise retail banking when it opened its first branch in London in 2010 – had a market capitalisation of £3.5bn.

Metro Bank became the first new lender to open on Britain’s high streets in over 100 years when it launched in the wake of the 2008 financial crisis.

Its branch-based model, which included gimmicks such as offering dog biscuits, proved costly, however, at a time when many rivals have been shifting to digital banking.

Reporting first-quarter results last month, Mr Frumkin said: “During the first quarter of 2025, we have continued to deliver the strategic repositioning of Metro Bank’s business, maintaining strong cost control while driving higher net interest margin by changing the mix of assets and remaining disciplined about deposits.”

“We have seen further growth in our corporate and commercial lending, with Metro Bank’s relationship banking and breadth of services creating differentiation for us in the market.”

Metro Bank operates from about 75 branches across the country, and saw roughly 30,000 new personal and business current accounts opened during the last quarter.

In 2019, customers formed sizeable queues at some of its branches after suggestions circulated on social media that it was in financial distress.

Days later, it unveiled a £350m share placing in a move designed to allay such concerns.

The company has had a chequered history with City regulators, despite its relatively brief existence.

In 2022, it was fined £10m by the Financial Conduct Authority for publishing incorrect information to investors, while the PRA slapped it with a £5.4m penalty for similar infringements a year earlier.

The lender was founded in 2009 by Anthony Thompson, a financial services entrepreneur, and Vernon Hill, an American who eventually left in controversial circumstances in 2019.

Last month, it sailed through a shareholder vote unscathed after drawing opposition to a proposal which could see top executives paid up to £60m apiece.

Metro Bank and Pollen Street both declined to comment on Saturday

Business

Rachel Reeves ‘a gnat’s whisker’ from having to raise taxes, says IFS

Published

2 days ago

June 13, 2025

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Rachel Reeves 'a gnat's whisker' from having to raise taxes, says IFS

Rachel Reeves is a “gnat’s whisker” away from having to raise taxes in the autumn budget, a leading economist has warned – despite the chancellor insisting her plans are “fully funded”.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), said “any move in the wrong direction” for the economy before the next fiscal event would “almost certainly spark more tax rises”.

‘Sting in the tail’ in chancellor’s plans – politics latest

Speaking the morning after she delivered her spending review, which sets government budgets until 2029, Ms Reeves told Wilfred Frost hiking taxes wasn’t inevitable.

“Everything I set out yesterday was fully costed and fully funded,” she told Sky News Breakfast.

Her plans – which include £29bn for day-to-day NHS spending, £39bn for affordable and social housing, and boosts for defence and transport – are based on what she set out in October’s budget.

That budget, her first as chancellor, included controversial tax hikes on employers and increased borrowing to help public services.

Chancellor won’t rule out tax rises

The Labour government has long vowed not to raise taxes on “working people” – specifically income tax, national insurance for employees, and VAT.

Ms Reeves refused to completely rule out tax rises in her next budget, saying the world is “very uncertain”.

The Conservatives have claimed she will almost certainly have to put taxes up, with shadow chancellor Mel Stride accusing her of mismanaging the economy.

Taxes on businesses had “destroyed growth” and increased spending had been “inflationary”, he told Sky News.

New official figures showed the economy contracted in April by 0.3% – more than expected. It coincided with Donald Trump imposing tariffs across the world.

Ms Reeves admitted the figures were “disappointing” but pointed to more positive figures from previous months.

‘Sting in the tail’

She is hoping Labour’s plans will provide more jobs and boost growth, with major infrastructure projects “spread” across the country – from the Sizewell C nuclear plant in Suffolk, to a rail line connecting Liverpool and Manchester.

But the IFS said further contractions in the economy, and poor forecasts from the Office for Budget Responsibility, would likely require the chancellor to increase the national tax take once again.

It said her spending review already accounted for a 5% rise in council tax to help local authorities, labelling it a “sting in the tail” after she told Sky’s Beth Rigby that it wouldn’t have to go up.