Thu, 03 Jul 2025

Thu, 03 Jul 2025 UK borrowing costs fall as investors' nerves ease

The cost of UK government borrowing falls and the pound rallies as the PM says he works "in lockstep" with Rachel Reeves.

* The cost of government borrowing has decreased, with the yield on UK 10-year bonds falling to 4.45% from 4.61%.
* Markets reacted positively to Prime Minister's comments that he works "in lockstep" with Chancellor Rachel Reeves.
* Analysts believe markets are supporting Reeves due to concerns about her potential departure and its impact on fiscal discipline.
* One analyst stated that financial markets are backing the chancellor, fearing a loss of control over government finances if she steps down.
* The pound leveled off at $1.3646 but did not regain all lost ground.
* Markets remain on edge and will likely take time to settle, according to Mohamed El-Erian.
* Sharp movements in bond yields can impact mortgage rates, with higher yields potentially making deals more expensive.
* Mortgage rates have been steady lately due to lender competition, but may change if swap rates rise or fall.
* Chancellor Reeves faced emotional outburst during PMQs on Wednesday, attributed to a "personal matter".
* Prime Minister Starmer backed Reeves, stating he works "in lockstep" with her and she is doing an excellent job as chancellor.
* Reeves acknowledged the reversal of welfare reforms created a black hole in her financial plans and admitted to being upset due to a personal issue.
* She stated that taxes may need to rise or spending cut elsewhere to cover the costs, but reiterated commitment to fiscal rules.
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