Why the financial market mood has shifted against the UK
As the dust settles on a tumultuous week for gilts (UK government bonds) and sterling – a week that has raised serious questions about chancellor Rachel Reeves’s stewardship of the economy – the big question many people will be asking is why investor sentiment has shifted so much against the UK in the past week.
Following on from that is what Ms Reeves should try to do about it.
The first point to make – and indeed it is one the government has been making – is that there has been a broad sell-off in government bonds around the world this week. Yields, which go up as the price of a bond falls, have been rising not only in the case of gilts but also on bonds issued by the likes of the US, Japan, France and Germany.
That reflects the fact that investors are changing their assumptions about the path of inflation this year and, in turn, how central banks like the US Federal Reserve, the European Central Bank and the Bank of England respond.
Money latest: Pound hit steadies as chancellor considers spending cuts
Inflation is now expected to be stickier around the world due to a combination of factors, of which by far the biggest is the tariffs the incoming Trump administration is expected to introduce. Those tariffs will push up the price of goods bought by American consumers and, if America’s trading partners respond with tariffs of their own, for consumers elsewhere. US Treasuries have also been under pressure due to expectations that Mr Trump will raise US borrowing sharply.
That said, gilt yields have been rising by more than yields on their international counterparts, reflecting the fact that investors think the UK has specific issues with inflation. The increase in employer’s national insurance contributions (NICs) announced by Ms Reeves in her Halloween budget will be highly inflationary because they will push up the cost of employing people.
The chief executives of some of the UK’s biggest retailers – Lord Wolfson at Next, Ken Murphy at Tesco, Stuart Machin at Marks & Spencer and Simon Roberts at Sainsbury’s – this week repeated their warnings that these higher costs will feed through to higher prices.
Please use Chrome browser for a more accessible video player
Treasury tries to calm market nerves
Another reason why gilt yields have risen more than those of their international counterparts is the UK’s particular fiscal position and its poor growth prospects.
Yes, other countries have as poor prospects for growth as the UK or as bad a debt situation. The US national debt, for example, is 123% of US GDP while Japan has a debt to GDP ratio of 250%. The UK, with a debt to GDP ratio of just under 99%, doesn’t look so bad by comparison. However, as the market in US Treasuries is the biggest and most liquid in the world and the US dollar is the global reserve currency, investors seldom have hesitation about lending to the US government. Similarly, in the case of Japan, most of its government debt is owned by Japanese savers – encapsulated by the mythical figure of ‘Mrs Watanabe’.
Read more: The market meltdown explained. Should I be worried?
The UK does not have that luxury and, accordingly, has to rely on what Mark Carney, the former governor of the Bank of England, memorably described in a 2017 speech as “the kindness of strangers” to fund its borrowing (he was talking on that occasion about the UK’s current account deficit rather than its fiscal deficit, but the point holds).
Please use Chrome browser for a more accessible video player
Investors ‘losing confidence in UK’
In summary, then, investors are demanding a higher premium for the added risk of holding gilts. That perceived risk – as the former prime minister Liz Truss has gleefully been pointing out – means that yields on some gilts are now even higher than they spiked following her chancellor Kwasi Kwarteng’s ill-fated mini budget in September 2022.
Investors are also sceptical about the UK economy’s ability to grow its way out of this predicament. While the government’s proposals to invest in infrastructure have been welcomed by investors, they have also noted that much of the extra borrowing being taken on by Ms Reeves in her budget was to fund big pay rises for public sector workers, which – rightly or wrongly – are not perceived to be as good a use of government money as, say, investing in improvements to roads or power grids.
Please use Chrome browser for a more accessible video player
CBI chief’s approach to budget tax shock
So what does Ms Reeves do?
Well, as the old joke about the Irishman guiding a lost tourist puts it, she “wouldn’t start from here”. The chancellor’s big mistake was to box herself in during the general election campaign by ruling out increases in income tax, employees’ national insurance, VAT or corporation tax. She could easily, for example, have promised to unwind her predecessor Jeremy Hunt’s cut in employee’s national insurance – which was rightly recognised by most voters as a pre-election bribe.
Still, she is where she is, so the chancellor’s main job now will be to convince investors that the UK is on a stable fiscal footing. With the recent rise in gilt yields – the implied government borrowing cost – threatening to eliminate the chancellor’s headroom to meet her fiscal rules, that is likely to mean public sector spending cuts or higher taxes. The former option is more likely than the latter and not least because Ms Reeves is committed to just one ‘fiscal event’ – when taxes are raised – per year and that will be her budget this autumn.
Read more from Sky News:
Sainsbury’s rewards staff with 5% pay hike despite budget tax hit
What’s going on in the markets and should we be worried?
Ticket re-sales could be capped under tout crackdown
The Bank of England is also going to have a big part to play here in reinforcing to markets its determination to bringing inflation down to its target range – which means borrowers should not expect as many interest rate cuts in 2025 as they were, say, six months ago.
The Bank may also slow the pace at which it is selling its own gilt holdings (accumulated largely during the ‘quantitative easing’ on which it embarked after the global financial crisis) which would also ease the downward pressure on gilts.
Also coming to the chancellor’s aid, in all likelihood, will be a weakening in the pound which should, all other things being equal, help make gilts more appetising to international investors.
All of this underlines though, unfortunately, that there is only so much the chancellor can do.
How much have America, Britain and the rest paid Ukraine in aid since the Russian invasion? And do they have any hope of getting money back in return?
These are big questions, and they’re likely to dominate much of the discussion in the coming months as Donald Trump pressurises his Ukrainian counterparts for a deal on ending the war. So let’s go through some of the answers.
First off, the question of who has given the most money to Ukraine rather depends on what you’re counting.
War latest: Ukraine agrees minerals deal with US – source
If you’re looking solely at the amount of military support extended since 2022, the US has provided €64bn, compared with €62bn from European nations (including the UK).
But now include other types of support, such as humanitarian and financial assistance, and European support exceeds American (€132bn in total, compared with €114bn from the US).
Divide Europe into its constituent nations, on the other hand, and none of them individually comes anywhere close to the US quantity of aid.
That being said, simple cash numbers aren’t an especially good measure of a country’s ability to pay.
Look at US support as a percentage of gross domestic product and it comes to 0.5% of GDP. That’s almost precisely the same as the aid from the UK.
Looked at through this prism, it’s other countries which are clearly the most generous: Denmark, Estonia and much of the Baltics providing around 2% of their GDP – a far bigger amount versus their ability to finance it.
Still, compare the aid this time around with previous amounts spent in other conflicts and they are nowhere close.
Lend-Lease during WWII, aid during the Vietnam and Korean Wars, and even the first Gulf War, involved significantly bigger outlays than currently being spent on Ukraine.
That goes not just for the US but also for the UK, Germany and Japan, all of which provided more aid to the Kuwaitis and other affected nations during the first Gulf War.
Even so, it’s clear that the US and others have put significant resources towards Ukraine.
President Trump has been talking recently about recouping $500bn from Ukraine in the form of revenues from mining rare earth metals.
This is, on the face of it, slightly odd. Rare earth metals represent an obscure corner of the periodic table and play a small if important role in electronics and military manufacturing.
The entire market is small – making it essentially implausible that, even if Ukraine suddenly produced the majority of the world’s supply, the president could expect that amount of revenue back in return.
More to the point, while there are a couple of rare earth deposits in Ukraine, they have languished, unexploited, for years. They are so expensive to mine no-one has worked out how to extract the elements and make a profit at the same time.
And even if you presumed they could do, Ukraine would still be a relative minnow in global rare earths production.
Read more:
What minerals does Ukraine have?
Assuming, as one probably should, that Donald Trump didn’t just mean rare earths, but was talking more broadly about “critical minerals” (the two are different things, but let’s not get too pedantic here), there are also one or two other promising mine sites in the country.
There is an old, shuttered alumina plant seized from Russian oligarch Oleg Deripaska. There is a large lithium resource which could, if all went well, be the single biggest lithium mine in Europe.
Yet even taking this into account, Ukraine would still be a relatively small player in global lithium. Not nothing – but not world changing either. Certainly not enough to generate the hundreds of billions of dollars Mr Trump is seeking.
Then again, Ukraine has other resources at its disposal too: vast seams of coal in the Donbas, large iron ore reserves in the south of the country.
Both of these are in or close to Russian occupied areas – which might, from the Ukrainians’ perspective, actually be the point. Old fashioned as this stuff is, it does actually generate significant revenue. It might be Donald Trump’s best hope for some payback.
The number of convictions linked to a second Post Office IT scandal being investigated for miscarriages of justice – has more than doubled, Sky News has learned.
Twenty-one Capture cases have now been submitted to the Criminal Cases Review Commission (CCRC) for review.
Before Christmas, it was around eight.
They relate to the Capture computing software, which was used in Post Office branches in the 1990s before the infamous faulty Horizon system was introduced.
Hundreds of sub-postmasters were wrongly accused of stealing after Horizon software caused false shortfalls in branch accounts between 1999 and 2015.
A report last year found that there was a reasonable likelihood that the Capture accounting system, used from the early 1990s until 1999, was also responsible for shortfalls.
If the CCRC finds significant new evidence or legal arguments not previously heard before, cases can be referred back to the Court of Appeal.
Lawyer for victims, Neil Hudgell from Hudgell Solicitors, says the next steps for the Capture cases and the CCRC are still “some months away”.
He said he is also hopeful that the first cases could be referred to the Court of Appeal before the end of this year.
Lawyer Neil Hudgell described victims of the Capture IT system as ‘hideously damaged people’
“Certainly we will certainly be lobbying,” he said. “The CCRC will be lobbying, the advisory board will be lobbying any interested parties, that these are hideously damaged people of advancing years who need some peace of mind and the quicker that can happen the better.”
Please use Chrome browser for a more accessible video player
In December the government said it would offer ‘redress’ to Post Office Capture software victims
‘We didn’t talk about it’
Among those submitted to the CCRC – Pat Owen’s Capture case was the first.
Her family have kept her 1998 conviction for stealing from her post office branch a secret for 26 years.
Juliet Shardlow shows Sky News paperwork which could explain discrepancies logged by Capture
Speaking to Sky News they have opened up for the first time about what happened to her.
Pat was a former sub-postmistress, who was found guilty and given a two-year suspended sentence.
She died in 2003 from heart failure.
David Owen and his wife Pat in happier times
Her daughters describe her as coming home from court after her conviction “a different woman”.
“We didn’t talk about it,” said Juliet Shardlow. “We didn’t talk about it amongst ourselves as a family, we didn’t talk about it with the extended family.
“Our extended family don’t know.”
Juliet Shardlow said her mum Pat was a different person after her conviction
David Owen, Pat’s husband, said she lost a lot of weight after her conviction and at 62 years old “looked like an old gal of 90”.
Capture evidence never heard in court
Pat’s family kept all the documents from her case safe for over two decades and now a key piece of evidence may turn the tide on her conviction, and potentially help others.
A document summarising the findings of an IT expert described the computer Pat used as having “a faulty motherboard”.
It also stated that this “would have produced calculation errors and may have been responsible for the discrepancies subsequently identified by Post Office Counters’ Security and Investigation team.”
Read more from Sky News:
Sub-postmasters: ‘Still going through hell’
Compensation for victims of Capture
Calls on Fujitsu for compensation
The computer expert was due to give evidence in Pat Owen’s defence at court as part of her trial – but failed to turn up on the day.
The family say they never found out exactly why he didn’t show up at court.
David said there was a computer all set up in the courtroom for the expert to use to show malfunctions.
David Owen said his wife Pat never expected to lose her court case
“I heard, now I can’t remember who from, that he’d done work for the Post Office,” he said.
“If he turned up to be a witness in court for us to he wouldn’t get any more work from the Post Office.”
Despite best efforts the expert has never been tracked down. The Post Office has declined to comment.
David also described how his wife never expected to lose her case.
“She was so confident. She knew she didn’t do anything wrong,” he said.
“But when the guilty verdict came out she actually fell to her knees in the dock crying her eyes out shaking.”
He said the judge then asked if he wanted to say anything, and David said he got up in court and spoke at length about his wife’s innocence.
The government announced in December that they will be setting up a redress scheme for Capture victims, similar to Horizon.
So far around 100 people who suffered after being accused of stealing from their branch, while using Capture, could be eligible for redress.
Business
MP Paul Waugh accuses Meta of turning Facebook Messenger into ‘Epstein’s paedophile island’
An MP has accused Meta of turning Facebook Messenger into “Jeffrey Epstein’s private island” by enabling end-to-end encryption.
The Science, Innovation and Technology Committee grilled tech giants X, TikTok, Google and Meta today as part of an inquiry into online misinformation and harmful algorithms.
“Twenty years ago, someone like Gary Glitter had to go to the other side of the world to prey on children,” said Labour MP Paul Waugh to Chris Yiu, one of Meta’s directors of public policy.
“Someone like Jeffrey Epstein had to create his own private paedophile island.
“Now, these monsters, all they have to do is go on to set up a group on Facebook Messenger.”
Mr Waugh was referring to Facebook Messenger’s recent implementation of end-to-end encryption, meaning that no one, not even Facebook, can see the contents of encrypted messages.
Law enforcement agencies also cannot see the messages, which is a constant source of tension between tech companies and governments.
Just last week, Apple removed one of its highest-security tools for users over an alleged request by the Home Office to be able to see its encrypted user data.
Please use Chrome browser for a more accessible video player
What the Apple security announcement means for your data
“Isn’t it true that you’ve turned Facebook Messenger into Epstein’s own paedophile island and a place where you can do what you want without getting caught?” asked Mr Waugh.
Mr Yiu denied this was the case and said the issue of online child sexual abuse material needed a “whole of society response” where tech companies and law enforcement agencies worked cooperatively.
He also argued end-to-end encryption is a “fundamental technology designed to keep people safe and protect their privacy”.
The select committee’s inquiry is investigating the spread of harmful content online, sparked by last August’s riots.
The widespread unrest took hold across the country after three young girls were stabbed to death in Southport.
Please use Chrome browser for a more accessible video player
Online network behind far right riots
In the days that followed, illegal content and disinformation spread “widely and quickly” online, according to the communications regulator Ofcom.
Read more from Sky News:
Apple removes end-to-end security encryption tool for UK
Illness kills more than 50 people in Democratic Republic of Congo
Kate Bush, Sam Fender and Damon Albarn release silent protest album
The committee chair Chi Onwurah said Elon Musk, owner of X, was invited to the evidence session but the billionaire did not reply formally.
MP Emily Darlington also quizzed the Meta representative about the company’s recent changes to its content guidelines.
She read out numerous examples of Meta users posting racist, antisemitic and transphobic comments online and asked Mr Yiu how Meta justified allowing those posts to stay online.
“We have received feedback that […] some areas of debates were being suppressed too much on our platform and that some conversations, whilst challenging, should have a space to be discussed,” he said.
X’s representative also faced questions from the MPs, with Ms Darlington asking why verified X users were able to post comments calling politicians rapists and threatening to “rise up and shoot” public figures.
Wifredo Fernandez, X’s senior director for Government Affairs, said he would ask the X team to review the posts.
-
Sports2 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports11 months agoStory injured on diving stop, exits Red Sox game
-
Sports1 year agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports3 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business2 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway