Earlier this year, and compared with 2022, the yield on the benchmark ten-year UK government bond had risen 1.1 percentage points more than the US equivalent and 0.6 points more than the typical eurozone ten-year bond. <\/p>\n
The difference in the yield on the UK 30-year bond was even higher, at 1.5 percentage points compared with the US and one point relative to the eurozone.<\/p>\n
This additional yield on UK debt is what traders call a \u201crisk premium\u201d, which often reflects market anxieties about fiscal credibility, high inflation and uncertainty about the trajectory of an economy.<\/p>\n
\u201cThe reasons for this premium are not straightforward, especially given that the UK\u2019s economic fundamentals are stronger than those of many countries with lower borrowing costs,\u201d the IPPR said, pointing to the country\u2019s debt-to-GDP ratio of around 100 per cent, which is below that of the US, Italy and Japan.<\/p>\n
Dave Ramsden, a deputy governor at the Bank of England, told MPs on the cross-party Treasury committee on Tuesday that bond market volatility was lower in the run-up to Reeves\u2019s budget last month than for fiscal events overseen by the Conservatives at the end of their parliamentary tenure.<\/p>\n
Markets were orderly after the budget and there \u201cwere no concerns\u201d about financial stability, \u201cwhich of course there have been on previous occasions in the UK and in other jurisdictions\u201d, he said. <\/p>\n
Bank officials said that the budget could lower inflation by up to 0.5 percentage points from its present level of 3.6 per cent. Britain has had the highest government borrowing costs in the G7 for some time, initially caused by the financial market chaos after Liz Truss\u2019s mini-budget three years ago.<\/p>\n
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Britain\u2019s economic fundamentals are stronger than those of many of its peers<\/p>\n
NIGEL JARVIS\/GETTY IMAGES<\/p>\n
This risk premium increased after Starmer and Reeves took office about 18 months ago, but the IPPR thinks that it will continue to unwind after Reeves more than doubled her fiscal headroom at the budget to \u00a322 billion through back-loaded tax rises and spending cuts. Under plans set out by Reeves last month, borrowing is set to halve by the end of the current parliament in 2029, the fastest drop of any G7 country.<\/p>\n
Despite the recent fall in yields, UK borrowing costs are still much higher<\/a> than those in the US and eurozone. Debt interest spending is forecast to exceed \u00a3100 billion in each of the next five years, according to the Office for Budget Responsibility.<\/p>\n