Budget concerns push borrowing costs to their highest level since July

Government borrowing costs have hit their highest level since before the election amid new evidence that Labor's budget plans are leaving investors in British assets unsettled.

The 10-year bond yield, which rises as prices fall, has risen to nearly 4.25% from about 3.75% just over three weeks ago.

Achieved yesterday 4.247%. was the highest level since July 3, i.e. the day before the Labor Party took power.

The latest surge comes after UK asset manager Liontrust said investors had pulled £1.1 billion from its funds amid concerns over Rachel Reeves' tax hike.

The Chancellor has warned that taxes will have to rise to plug a £22 billion hole in public finances.

This could include a rise in capital gains tax – a move that businesses fear will discourage investment, as well as raids on other areas including pensions.

Reports suggest it could also change fiscal rules to unlock tens of billions to spend on infrastructure.

But some experts suggest it may not be easy for the government to raise the money it needs by selling British bonds, known as lots. This increased the risk of a “buyers' strike” among investors in government bonds.

Treasury yields represent the return expected by these investors for the risk of lending money to the government.

Neil Wilson, chief market analyst at Finalto, said the move came “as it became clear that Chancellor Rachel Reeves would change debt rules to borrow more.”

And he added: “Watch out for the gilts.” It may not be that easy for Reeves.

Experts from Pantheon Macroeconomics pointed to other factors that are causing an increase in treasury bond yields, including an increase in oil prices caused by the conflict in the Middle East, increasing inflationary pressure.

Another factor is the better-than-expected performance of the American economy.

Both reduce the likelihood of a quick reduction in interest rates.

Pantheon said the prospect that the government would have to sell more Treasuries than expected to raise the money “likely contributed to the rise in Treasury yields, but only slightly.”

Liontrust's warning came after the asset manager reported a 4% decline in assets under management to £26 billion in the three months to September.

Liontrust's outflows of £1.1 billion in the period were lower than £1.6 billion in the same period a year earlier.

But the election of a government with a large majority “raised expectations for political and economic stability and a strong pro-growth agenda,” said company CEO John Ions.

He added: “However, speculation and uncertainty around tax and relief changes have impacted investor confidence and fund flows for the industry as a whole.”

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