Ten-year government yields have climbed as much as 14 basis points to 4.82% (Image: Getty)
The UK’s economy has taken a perilous turn, with the pound plummeting and borrowing costs soaring.
Government 14 basis points in one day to 4.82%, the highest since August 2008.
The pound fell against all major currencies, plummeting more than 1% compared to the dollar, and UK stocks also slumped.
British stocks fell on Wednesday alongside sterling, with the domestically-focused FTSE 250 mid-cap index down 2% to a five-month low.
The blue-chip FTSE 100 was broadly flat, cushioned by a 1% drop in sterling that helped international firms on the index that draw a major portion of their revenues overseas.
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Nigel Green, chief executive of the De Vere group, a firm of international financial advisers, said with bond yields surging and the pound in freefall, Chancellor Rachel Reeves’ stewardship of Britain’s finances appears to be “crumbling under scrutiny”.
Green said: “Investors must act decisively before they’re caught in the economic crossfire.”
In an interview with Bloomberg, former Bank of England rate-setter Martin Weale compares the current situation to the 1976 crisis—when Britain was forced to beg the IMF for a $3.9 billion bailout. Back then, ballooning deficits and plunging market confidence pushed the UK into economic humiliation.
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Under Reeves’ leadership, twin deficits and skyrocketing borrowing costs are eerily reminiscent of that national nightmare.
Nigel Green, CEO of deVere Group, said: “Rachel Reeves’ fiscal strategy appears to be nothing more than wishful thinking dressed up as policy.
“Promises of funding massive spending through so-called ‘growth’ have clearly failed to convince markets. Investors can’t afford to sit back and wait for her to deliver on empty rhetoric.
“The numbers don’t lie. On Wednesday, 10-year government bond yields soared to 4.82%, the highest since August 2008. Meanwhile, the pound slumped more than 1% against the dollar, falling against all major currencies. UK stocks also tumbled, underscoring a toxic mix of rising debt costs and collapsing market confidence.
“Reeves’ fragile £9.9 billion fiscal buffer could be obliterated well before her official fiscal update on March 26. The Chancellor’s inability to reassure markets is fanning fears of an economic implosion, with austerity looming as the only option to restore credibility—a brutal throwback to 1976.”
What was the 1976 UK IMF bailout?
In 1976, the UK borrowed £3.1bn from the International Monetary Fund (IMF) after the price of sterling fell, leaving the then Labour government under Jim Callaghan facing an economic crisis.
Inflation went up to 25% in 1975, and the UK had a growing balance-of-payments deficit, so was having to pay huge interest on its loans which also created a public-spending deficit and rising unemployment.
The IMF loan came with conditions, with more cuts to public spending.
Experts say these harsh austerity measures left deep scars on the economy.