The UK bond yields continues at its highest level since 2008 given the uncertainty surrounding the Government led by Keir Starmer. The Prime Minister of the United Kingdom He is currently resisting pressure to resign.. Even more so, when some of its members have already left office. The intense tension is driving up the British government’s borrowing costs. This Wednesday the profitability of the 10-year State bonds stands at 5.13%, while that of the 30-year bond remains above 5.7%. «The concern is that pressure on prime minister could lead to looser fiscal policywhile rising energy costs fuel expectations that the Bank of England will have to raise interest rates this year. It is a difficult combination: higher borrowing costs, lower confidence and less room for maneuver for the government to offer support if the economy slows,» explains Matt Britzman, senior equity analyst at Hargreaves Lansdown. As XTB research director Kathleen Brooks points out, the main problem for the UK economy is that 10-year bond yields remain above 5% and she expects that will remain around this level in the long term«especially if an outgoing prime minister fails to deliver on promised economic growth before the 2024 election.» «With a 5% profitability, the Government’s borrowing costs increase dramatically, eroding the fiscal space accumulated by the finance minister in last year’s Budget. This also keeps borrowing costs high for companies. «When the cost of debt rises, companies must pass these costs on to consumers, so rising borrowing costs can also increase inflationary pressures in the UK, which in turn puts further upward pressure on bond yields,» he says. It all started after the defeat suffered in local elections held last week, in which the Labor Party recorded the worst results in an election of this type for a ruling party in more than three decades. After that, Some 90 lawmakers have publicly called for Starmer to resign.. In addition, some lower-ranking ministers have resigned from their positions in protest. However, Starmer has assured that will remain in his position to move forward with plans to reform the country, since otherwise it would bring chaos and instability. «The United Kingdom is at a crucial moment: move forward with a plan to build a stronger, more just country or retreat to the chaos and instability of the past«, he noted in a statement issued this Tuesday night, adding that «the British people expect the Government to get to work to improve our country.» As ING analysts highlight, «Starmer intends to remain as prime minister and run in any leadership contest against rivals. These rivals, such as Wes Streeting, Andy Burnham or Angela Rayner, have not yet formally announced their candidacy. However, if any of these candidates were to formally run for leadership, further losses would likely occur for the pound, especially if there were news about Andy Burnham, whose policies are considered a threat to the government bond market«. «Farage’s name resonates in the markets as a clear indication of looser fiscal policy, greater spending and higher deficits, just when Investors are already worried about British debt and inflation prospects,» says Ipek Ozkardeskaya, senior analyst at Swissquote. «This combination is driving investors to demand greater compensation for holding British government debt, which has pushed the yield on 10-year British government bonds above 5%. The higher the borrowing costs, the less the Government will be able to borrow and the impact on growth would be negative» he says. For AJ Bell’s head of financial analysis, Danni Hewson, although Starmer still resides at 10 Downing Street, «it is difficult to ignore the light of implicit unemployment that shines from one of the windows on the ground floor of the building. Without a clear candidate for the position of prime minister, there is plenty of opportunities to speculate about who might be interested in the job and what policies they would push«. «Radical economic reforms have been demanded. But such measures will require cash, a type of money that is unlikely to come from magical sources of growth, especially as the economy faces another bout of inflation. Borrowing more could help accelerate the change the Labor Government promised voters at the general election, but looking at current government bond yields, going into debt is going to cost more than it would have cost just a couple of months ago«he comments. He believes that «it is not just a question of who could replace Starmer in the short term, but What color will be the cockade that the prime minister could wear in 2029?. Uncertainty coupled with volatility is not something that markets easily accept. What is certain is that if the cost of borrowing remains high, the options for any government become more difficult to balance. If more is spent on interest, there will be less money to spend on public services, infrastructure projects and tax cuts. And with inflation expected to put even more pressure on the public purse, whoever occupies the 11th spot at the time of the next Budget You will find yourself in a very complicated situation.«.
