The gilt market is delivering a verdict that Whitehall will not enjoy reading. Yields on 10-year UK government bonds have spiked to levels not seen since the mini-Budget fiasco, as investors demand a higher premium for holding British debt. This is not a blip.
It is a signal that the market’s patience with Westminster’s fiscal incontinence is wearing thin. The political chaos engulfing Downing Street has a direct cost: higher borrowing costs for the Treasury, and by extension, for every taxpayer. The spread over German bunds has widened sharply, a classic vote of no confidence from the bond vigilantes.
The irony is rich. A government that came to power promising fiscal discipline is now presiding over a crisis of credibility. The numbers are stark: the yield on the 10-year gilt touched 4.
5% this morning, up from 3.8% just three months ago. That may sound like a few basis points, but it means billions in extra debt servicing costs.
For a chancellor already struggling to fill a black hole in the public finances, this is a nightmare. The root cause? It starts with leadership.
The revolving door at Number 10 has left investors unsure who is calling the shots on economic policy. The current prime minister’s authority is crumbling, and the markets hate uncertainty. But there is a deeper malaise.
Britain’s structural problems are unresolved: low productivity, high inflation, a bloated state, and a current account deficit that requires constant foreign capital inflows. When the political weather turns stormy, those capital flows can reverse. We have seen sterling wobble, but the real action is in the bond market.
The Bank of England faces a dilemma. It has been raising rates to fight inflation, but tighter monetary policy risks exacerbating the slowdown. Yet if it blinks now, it will look like it is bowing to political pressure, further undermining credibility.
The parallel with 2022 is obvious but dangerous. Then, the mini-Budget triggered a gilt market crash that required central bank intervention. This time, the moves are more gradual, but the trend is unmistakable.
The market is repricing British risk. It is a wake-up call for a political class that has treated fiscal responsibility as an optional extra. Until the government demonstrates a credible plan to stabilise debt, the gilt yields will remain elevated.
And that means higher mortgage rates, higher business borrowing costs, and a slower economy. The bottom line is simple: you cannot run a country on borrowed time and borrowed money. Britain’s fiscal discipline is in question, and the markets are marking our card.
