Political instability, fears of drawn-out Labour leadership campaign, and possibility of Reform government all blamed for jump in UK borrowing costs
UK government bond prices are rallying at the start of trading, pulling down borrowing costs.
Investors appear relieved that Sir Keir Starmer is holding onto power this morning, after a challenge from health secretary Wes Streeting failed to materialise.
Streeting was due to hold talks with Starmer on Wednesday, at which he was expected to talk candidly about his concerns, with No 10 insiders suggesting he was climbing down from intense speculation that he was on the brink of running.
The Labour Party is not driven by one individual. It is shaped by its internal dynamics and by its union base, both of which tend to favour a more expansive fiscal stance. Markets understand this. They do not price the best-case scenario, they price the probability weighted outcome. Where fiscal discipline risks giving way to political pressure, yields adjust accordingly.
The reaction to Andy Burnham’s comments was telling. His remark that the UK has to “get beyond this thing of being in hock to the bond markets” reflects a strand of thinking within the party that markets instinctively reject, not the rhetoric itself, but for what it implies about relaxing fiscal constraints.
Continue reading…Political instability, fears of drawn-out Labour leadership campaign, and possibility of Reform government all blamed for jump in UK borrowing costsUK government bond prices are rallying at the start of trading, pulling down borrowing costs.Investors appear relieved that Sir Keir Starmer is holding onto power this morning, after a challenge from health secretary Wes Streeting failed to materialise.Streeting was due to hold talks with Starmer on Wednesday, at which he was expected to talk candidly about his concerns, with No 10 insiders suggesting he was climbing down from intense speculation that he was on the brink of running.The Labour Party is not driven by one individual. It is shaped by its internal dynamics and by its union base, both of which tend to favour a more expansive fiscal stance. Markets understand this. They do not price the best-case scenario, they price the probability weighted outcome. Where fiscal discipline risks giving way to political pressure, yields adjust accordingly.The reaction to Andy Burnham’s comments was telling. His remark that the UK has to “get beyond this thing of being in hock to the bond markets” reflects a strand of thinking within the party that markets instinctively reject, not the rhetoric itself, but for what it implies about relaxing fiscal constraints. Continue reading…
