Relax, chancellor... lettuce is definitely off the menu

Borrowing rates have risen in the aftermath of Rachel Reeves's Budget, hitting a one-year high in the bond market and prompting strained comparisons with the mini-Budget in September two years ago which ended former prime minister Liz Truss's political career.

- HOWARD MUSTOE

But yesterday’s move is minor by comparison. Not only that, but news has emerged which may explain some of the bond market’s fears. Yields on 10-year UK bonds are now at 4.48 per cent, compared to about 4.24 per cent just before Ms Reeves delivered her Budget, a rise of just under a quarter of a percentage point.

Holders of UK government debt sold a chunk of it, sending bond prices falling, which means the amount of interest they yield rises. The shift has been less dramatic than that following Ms Truss’s 2022 disaster, said Hal Cook, senior investment analyst at stockbroker Hargreaves Lansdown.

“In what was a huge move, the 10-year gilt yield moved from around 3.3 per cent a couple of days before that mini-Budget up to around 4.5 per cent a couple of days after it.”

More recently, bond yields had been rising since midSeptember, he said. “There are a few reasons for this, and the looming Budget has been one of them. The uncertainty surrounding this specific Budget had made bond investors nervous, with expectations of higher future borrowing in particular weighing on sentiment towards the attractiveness of UK government debt.”

On top of this, it emerged yesterday that the government spending watchdog, the Office for Budget Responsibility (OBR), got its sums wrong on how much wiggle room Ms Reeves would buy herself when she switched to a new measure of the nation’s debts.