British government bonds faced sharp declines following the Labour government's reversal on planned welfare cuts, triggering widespread market reactions.
Scrapping Cuts and Its Consequences
The abandonment of planned welfare cuts sent shockwaves through the markets, reminiscent of the 2022 bond market crisis that ended Liz Truss's brief premiership. The yield on the UK 10-year gilt rose to 4.681%, marking the biggest intra-day spike since the Truss era.
Chancellor Reeves Under Pressure
Chancellor Rachel Reeves has come under scrutiny following the reversal of cuts. Her fiscal rules face jeopardy as the cancellations were intended to bolster treasury savings. There are also reports of dissent within the Labour Party regarding the morality of the initial cuts.
Global Debt Concerns Impacting Britain
The challenges faced by the UK are set against a backdrop of growing global anxiety surrounding rising government deficits. Unlike other major economies, the UK has limited fiscal space and is grappling with slow growth and tight monetary conditions.
Recent policy shifts concerning welfare cuts have already impacted the credibility of the UK government within financial markets, leaving investors cautious and the future uncertain.
