The chancellor is under pressure because financial market moves have pushed up the cost of government borrowing, putting Rachel Reeves’ economic plans in peril.
So what’s going on, and should we be worried?
What is a bond?
UK Treasury bonds, known as gilts because they used to literally have gold edges, are the mechanism by which the state borrows money from investors.
They pay a fixed annual return, known as a coupon, to the lender over a fixed period – five, 10 and 30 years are common durations – and are traded on international markets, which means their value changes even as the return remains fixed.
That means their true interest rate is measured by the ‘yield’, which is calculated by dividing the annual return by the current price. So when bond prices fall, the yield – the effective interest rate – goes up.
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And for the last three months, markets have been selling off UK bonds, pushing borrowing costs higher. This week the yield on 30-year gilts reached its highest level since 1998 at 5.37%, and 10-year gilts briefly hit a level last seen after the financial crisis, sparking jitters in markets and in Westminster.
Why are investors selling UK bonds?
Bond markets are influenced by many factors but the primary domestic pressure is the prospect of persistent inflation, with interest rates staying high for longer as a consequence.
Higher inflation reduces the purchasing power of the coupon, and higher interest rates make the bond less competitive because investors can now buy bonds paying a higher rate. Both of which apply in the UK.
Inflation remains higher than the Bank of England‘s 2% target and many large companies are warning of further price rises as tax and wage rises bite in the spring.
As a result, the Bank is now expected to cut rates only twice this year, as opposed to the four reductions priced in by markets as recently as November.
Nor is there much optimism that the economic growth promised by the chancellor will save the day in the short term, with business groups warning investment will be tempered by taxes.
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Sky News’ Ed Conway on the impact of increased long-term borrowing costs as they hit their highest level in the UK since 1998
Is the UK alone?
No. Bond markets are international and in recent months the primary influence has been rising borrowing costs in the US, triggered by Donald Trump’s re-election and the assumption that tariffs and other policies will be inflationary.
The UK is not immune from those forces, and other European nations including Germany and France, facing their own political gyrations, have seen costs rise too. (The US influence could yet increase if strong labour market figures on Friday reinforce the sense that rates will remain high).
But there are specific domestic factors, particularly the prospect of stagflation. The UK is also more reliant on overseas investors than other G7 nations, which means the markets really matter.
Why does it matter to Reeves?
The cost of borrowing affects not just the issuance of new debt but the price of maintaining existing loans, and it matters because these higher costs could erode the “headroom” Ms Reeves left herself in her budget.
Headroom is a measure of how much slack she has against her self-imposed fiscal rule, itself intended to reassure markets that the UK is a stable location for investment, to fund day-to-day spending entirely from tax revenue by 2029-30.
At the budget, she had just £9.9bn of headroom and some analysts estimate market pressure has eroded all but £1bn of that.
At the end of March the Office for Budget Responsibility will provide an update on the fiscal position and market conditions could change before then, but if they don’t then Ms Reeves may have to rewrite her plans.
The Treasury this week described the fiscal rules as “non-negotiable”, which leaves a choice between raising taxes or, more likely, cutting costs to make the numbers add up.
Why does it matter to the rest of us?
Persistently higher rates could push up consumer debt costs, increasing the burden of mortgages and other loans. Beyond that, the state of the economy matters to all of us.
The underlying challenges – persistent inflation, stagnant growth, worse productivity, ailing public services – are fundamental, and Labour has promised to address them.
Investment in infrastructure and new industries, spurred by planning and financial market reform, are all promised as medium-term solutions to the structural challenges. But politics, like financial markets, is a short-term business, and Ms Reeves could do with some relief, starting with helpful inflation and growth figures due next week.
The man dubbed “Britain’s most hated boss” for his controversial policy of sacking hundreds of seafarers and replacing them with cheaper agency staff is to quit.
Sky News can exclusively reveal that Peter Hebblethwaite, the chief executive of P&O Ferries, is leaving the company.
Sources said he had decided to resign for personal reasons.
Mr Hebblethwaite joined the ranks of Britain’s most notorious corporate figures in 2022 when P&O Ferries – a subsidiary of the giant Dubai-based ports operator DP World – said it was sacking 800 staff with immediate effect – some of whom learned their fate via a video message.
The policy, which Mr Hebblethwaite defended to MPs during subsequent select committee hearings, erupted into a national scandal, prompting changes in the law to give workers greater protection.
Under the new legislation, the government plans to tighten collective redundancy requirements for operators of foreign vessels.
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In a statement issued in response to a request from Sky News, a P&O Ferries spokesperson said: “Peter Hebblethwaite has communicated his intention to resign from his position as chief executive officer to dedicate more time to family matters.
Image: Peter Hebblethwaite gives evidence to a committee of MPs in 2022. Pic: PA
“P&O Ferries extends its gratitude to Peter Hebblethwaite for his contributions as CEO over the past four years.
“During his tenure the company navigated the challenges of the COVID-19 pandemic, initiated a path towards financial stability, and introduced the world’s first large double-ended hybrid ferries on the Dover-Calais route, thereby enhancing sustainability.
“We extend our best wishes to him for his future endeavours.”
A source close to the company said it anticipated making an announcement on Mr Hebblethwaite’s successor in the near term.
A former executive at J Sainsbury, Greene King and Alliance Unichem, Mr Hebblethwaite joined P&O Ferries in 2019, before taking over as chief executive in November 2021.
Insiders claimed on Friday that he had “transformed” the business following the bitter blows dealt to its finances by the COVID-19 pandemic and – to some degree – by the impact of Britain’s exit from the European Union.
Image: A union protest is shown at the height of the mass sackings row in 2022
P&O Ferries carries 4.5 million passengers annually on routes between the UK and continental European ports including Calais and Rotterdam.
It also operates a route between Northern Ireland and Scotland, and is a major freight carrier.
The company’s losses soared during the pandemic, with DP World – its sole shareholder – supporting it through hundreds of millions of pounds in loans.
Its most recent accounts, which were significantly delayed, showed a significant reduction in losses in 2023 to just over £90m.
The reduction from the previous year’s figure of almost £250m was partly attributed to cost reduction exercises.
The accounts also showed that Mr Hebblethwaite received a pay package of £683,000, including a bonus of £183,000.
“I reflected on accepting that payment, but ultimately I did decide to accept it,” he told MPs.
“I do recognise it is not a decision that everybody would have made.”
The row over his pay was especially acute because of his admission that P&O Ferries’ lowest-paid seafarers received hourly pay of just £4.87.
Mr Hebblethwaite had argued since the mass sackings of 2022 that the company would have gone bust without the drastic cost-cutting that it entailed.
The company insisted at the time that those affected by the redundancies had been offered “enhanced” packages to leave.
Last October, the then transport secretary, Louise Haigh, said: “The mass sacking by P&O Ferries was a national scandal which can never be allowed to happen again,” adding that measures to protect seafarers from “rogue employers” would prevent a repetition.
“This issue has been ignored for over 2 years, but this new government is moving fast and bringing forward measures within 100 days,” Ms Haigh added.
“We are closing the legal loophole that P&O Ferries exploited when they sacked almost 800 dedicated seafarers and replaced them with low-paid agency workers and we are requiring operators to pay the equivalent of National Minimum Wage in UK waters.
“Make no mistake – this is good for workers and good for business.”
The minister’s description of P&O Ferries as “rogue”, and suggestion that consumers should boycott the company, sparked a row which threatened to overshadow the government’s International Investment Summit last October.
Sky News’s business and economics correspondent, Paul Kelso, revealed that DP World had withdrawn from participating in the event, and paused a £1bn investment announcement.
The company relented after Sir Keir Starmer publicly distanced the government from Ms Haigh’s characterisation of DP World.
Donald Trump has cancelled a loophole from today that had allowed consumers and businesses to be spared duties for sending low-value goods to the United States.
The so-called de minimis exemption had applied across the world before Trump 2.0 but the president has taken action – and the UK may soon follow suit – as part of his trade war.
The relief had allowed goods worth less than $800 (£595) to enter the US duty-free since 2016.
But now, low-cost packages face the same tariff rate as other, more expensive, goods.
The reasons for the latest bout of protectionism are numerous and the ramifications are country and purpose specific.
What is changing?
It was no accident that China was the first destination to be slapped with this rule change.
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The duty exemption on low-value Chinese goods was ended in May as US retailers, in fact those across the Western world, complained bitterly that they were being undercut by cheap clothing, accessories and household goods shipped by the likes of Shein and Temu.
From today, Mr Trump is expanding the end of the de minimis rule to the rest of the world.
Why is Trump doing this?
Image: Number of de minimis packages imported in to the US since 2018
The president is not acting purely to protect US businesses.
More duties mean more money for his tariff treasure chest, bolstering the goodies already pouring in from his base and reciprocal tariffs imposed on trading partners globally this year.
The Trump administration has also called out “deceptive shipping practices, illegal material and duty circumvention”.
It also believes many parcels claiming to contain low-value goods have been used to fuel the country’s supplies of fentanyl, with the importation of the illegal drug being used by the president as a reason for his wider trade war against allies including Canada.
How will it apply?
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New tariffs threaten fresh trade chaos
Under the new rules, only letters and personal gifts worth less than $100 (£74) will still be free of import duties.
Charges will depend on the tariff regime facing the country from where the goods are sent.
Fox example, a parcel containing products worth $600 would raise $180 in extra duties when sent from a country facing a 30% tariff rate.
It has sparked chaos in many countries, with postal services in places including Japan, Germany and Australia refusing to accept many items for delivery to the US until the practicalities of the new regime become clearer.
What about the UK?
All goods not meeting the £74 exemption criteria now face a 10% charge because that is the baseline tariff the US has slapped on imports from the UK.
We were spared, if you remember, higher reciprocal tariffs under the so-called “trade deal”.
How will the process work?
All shipping and delivery companies will be wading through the changes, with the big international operators such as DHL, FedEx and the like all promising to navigate the challenge.
Royal Mail said on Thursday that it would be the first international postal service to have a dedicated operation.
It said consumers could use its new postal delivery duties paid (PDDP) services both online and at Post Offices.
But it explained that business customers faced different restrictions to individuals.
Businesses would be charged a handling fee per parcel to cover additional costs and duties would be calculated based on where items were originally manufactured.
While business account customers could be handed an invoice for the duties, it explained that consumers would have to pay at the point of buying postage.
No customs declaration would be required, it concluded, for personal correspondence.
Is the US alone in doing this?
The answer is no, but it remains a fairly widespread relief globally.
The European Union, for example, removed de minimis breaks back in 2021, making all e-commerce imports to the bloc subject to VAT.
It is also now planning to introduce a fee of €2 on goods worth €150 or less to cover the costs of customs processing.
Should the UK do the same?
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July: The value of ‘de minimis’ imports into Britain
The UK has been under pressure for many years to follow suit and drop its own £135 duty-free threshold as retailers battle the cheap e-commerce competition from China we mentioned earlier.
A review was announced by the chancellor in April.
Sky News revealed in July how the total declared trade value of de minimis imports into the UK in the 2024-25 financial year was £5.9bn – a 53% increase on the previous 12-month period.
Any rise in revenue would be welcomed, not only by UK retailers, but by Rachel Reeves too as she looks to fill a renewed black hole in the public finances.
Sanjeev Gupta, the metals tycoon whose main British business was forced into compulsory liquidation last week, is facing a deepening probe by Australian regulators into his operations in the country.
Sky News has learnt that officials from the Australian Securities & Investment Commission (ASIC) last week served Mr Gupta’s Liberty Steel group with a new demand for information about its activities.
Sources said the regulator had also taken possession of a mobile phone belonging to Mr Gupta as part of the probe.
One insider said that other senior executives at the company may also have had electronic devices confiscated, although the accuracy of this claim could not be verified on Thursday morning.
Both ASIC and a spokesman for Mr Gupta’s GFG conglomerate refused to comment on the suggestion that a search warrant had been produced by the watchdog.
ASIC’s deepening investigation comes a month after it said that three of GFG Alliance’s companies had been ordered by the Supreme Court of New South Wales to lodge outstanding annual reports with it.
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It is the latest headache to hit Mr Gupta, whose companies remain under investigation by the Serious Fraud Office in the UK.
Last week, the Official Receiver took control of Speciality Steels UK following a winding-up petition from creditors led by Greensill Capital, the collapsed finance firm.
Mr Gupta remains intent on buying SSUK back, and has assembled financing from BlackRock, the world’s largest asset manager, Sky News revealed last week.
SSUK employs nearly 1,500 people at steel plants in South Yorkshire, and makes highly engineered steel products for use in sectors such as aerospace, automotive and oil and gas.
“[Gupta Family Group] will now continue to advance its bid for the business in collaboration with prospective debt and equity partners and will present its plan to the official receiver,” Jeffrey Kabel, chief transformation officer, at Liberty Steel, said after SSUK’s collapse.
“GFG continues to believe it has the ideas, management expertise and commitment to lead SSUK into the future and attract major investment.”
“The plan that GFG presented to the court would have secured new investment in the UK steel industry, protecting jobs and establishing a sustainable operational platform under a new governance structure with independent oversight,” Mr Kabel added.
“Instead, liquidation will now impose prolonged uncertainty and significant costs on UK taxpayers for settlements and related expenses, despite the availability of a commercial solution.”
Mr Gupta wants to hand control of SSUK to his family in a bid to alleviate concerns about his influence.
One source close to the situation claimed that the ownership structure devised by Mr Gupta would be independent, ring-fenced from him and have “robust standards of governance”.
Behind Tata Steel and British Steel, SSUK is the third-largest steel producer in the country.
Other parts of Mr Gupta’s empire have been showing signs of financial stress for years.
Mr Gupta is said to have explored whether he could persuade the government to step in and support SSUK using the legislation enacted to take control of British Steel’s operations.
His overtures were dismissed by Whitehall officials.
He had previously sought government aid during the pandemic but that plea was also rejected by ministers.