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.

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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.

An amber warning has been issued for snow in a part of the UK, likely to cause travel delays and “stranding some vehicles and passengers”.

The warning, which covers south west England, also warns some rural communities could become cut off and is in place until 2pm this evening.

There is also a yellow weather warning for snow covering the southern counties of England until midnight on Wednesday.

The warning stretches from Kent to Cornwall and up to south London and the Met Office said between 2cm and 5cm of snow could accumulate fairly widely, with as much as 10cm over higher ground.

This week is expected to see the coldest nights of the year, with temperatures potentially reaching -14C on Wednesday night and -16C on Thursday night, both in the North East of England and Scotland, the Met Office said.

Weather warnings issued on Tuesday for snow and ice covering the parts of Wales, the North West of England, west and northern parts of Scotland as well as Northern Ireland will remain in place until midnight tomorrow.

The forecaster said some roads and railways are likely to be affected and there could be icy patches on untreated roads.

Meanwhile the Environment Agency has said at least 300 properties have flooded across England since New Year’s Eve. It estimates more than 41,000 properties have been protected.

Heavy rainfall over the New Year caused significant river and surface water flooding across the North West of England and Yorkshire and snowmelt has brought further disruption to parts of England, particularly the Midlands, the agency said.

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Floods minister Emma Hardy said: “My sympathies go out to the people, businesses and communities impacted by the recent flooding across the country.

“I want to express my heartfelt thanks for the vital work that the Environment Agency and emergency services are doing to keep people safe. People must continue to follow their advice and sign up for flood warnings.”

Flood warnings

Some 100 flood warnings were in force across England on Wednesday, with people urged to remain vigilant over the coming days.

A danger-to-life warning was issued on Tuesday morning for the River Soar near Barrow upon Soar, Leicestershire, but was later removed.

People living in caravan parks in the area were urged by the Environment Agency to act, with a large-scale evacuation needed to save lives.

Firefighters have rescued dozens of people across Leicestershire since Monday, Leicestershire Fire and Rescue Service said.

Hundreds of schools were closed across the UK, with road and rail links blocked, as Manchester, Bristol and Liverpool John Lennon airports suspended flights because of the conditions.