The \u201cpremium\u201d that the UK pays to borrow money compared with its international peers may be coming to an end as markets grow more confident about the government\u2019s plans, a thinktank has suggested.<\/p>\n
The Institute for Public Policy Research (IPPR) said that the chancellor Rachel Reeves\u2019s announcement in the autumn budget that she would be more than doubling the UK\u2019s financial headroom by 2030 from \u00a39.9bn to \u00a322bn had begun to assure bond markets about Labour\u2019s fiscal approach.<\/p>\n
Government bond yields \u2013 which is the return paid on government debt \u2013 have been increasing around the world in recent years, as a result of higher inflation, rising interest rates and countries running bigger deficits.<\/p>\n
However, UK\u2019s gilt yields have been higher than its peers, including the US and the eurozone, largely because the economy suffers from a \u201ccredibility problem\u201d over whether its fiscal policies will be achieved, according to IPPR, a left-leaning thinktank.<\/p>\n
UK yields have risen by 0.4 to 0.8 percentage points more than major peers since Labour won the 2024 election, the IPPR said, costing taxpayers up to \u00a37bn a year. The government has spent \u00a392bn on interest payments so far for this financial year, it said.<\/p>\n
Bond yield graphic<\/a><\/p>\n The higher cost of borrowing for the UK comes despite the fundamentals of its economy being stronger than countries with lower borrowing costs. The UK\u2019s debt-to-GDP ratio is 101%, compared with 122% in the US and 237% in Japan, and the government is planning to halve the amount it borrows each year by the end of this parliament.<\/p>\n The problem is that bond traders think the UK is not good at keeping to its fiscal policies, the IPPR said. The mini-budget in 2022 under the Liz Truss administration \u201cshowed how quickly a UK government could bypass the fiscal framework\u201d, the thinktank said. It added that in the years leading up to this event, successive chancellors had \u201crepeatedly changed, missed or redefined their own fiscal rules\u201d or changed themselves, with seven different chancellors from 2016 up to the 2024 election. A \u201clack of trust in stated fiscal policy has set in, as actions have spoken louder than words,\u201d it said.<\/p>\n However, the autumn budget prompted the UK premium against the eurozone to almost halve. William Ellis, a senior economist at IPPR, said: \u201cThe premium on UK borrowing costs appears to be easing, showing that markets are responding to growing confidence in the government\u2019s fiscal approach. Sticking to its fiscal plans could save the exchequer billions and free up fiscal space in the future.\u201d<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n IPPR said another way to lower borrowing costs would be for the Bank of England to pause its sale of government bonds after \u201cselling them at a record pace\u201d.<\/p>\n Carsten Jung, the associate director for economic policy at IPPR, said: \u201cThe Bank of England needs to pull its weight. Actively selling government bonds is adding unnecessary pressure to the gilt market. It should stop \u2013 just as every other major central bank has.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The \u201cpremium\u201d that the UK pays to borrow money compared with its international peers may be coming to…\n","protected":false},"author":2,"featured_media":307812,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":{"0":"post-307811","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/307811","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=307811"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/307811\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/307812"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=307811"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=307811"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=307811"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}