Welfare bill climbdown fuels biggest one-day hike in government borrowing costs since Liz Truss mini-budget debacle
UK government borrowing costs have risen sharply amid speculation over Rachel Reeves’s position as chancellor, as City investors warned Labour’s welfare U-turn had blown a multibillion-pound hole in the public finances.
After Keir Starmer failed initially to give his full backing to a tearful chancellor at prime minister’s questions on Wednesday, the yield on 10-year UK government bonds, also known as gilts, had its biggest jump in a day since Liz Truss was in No 10, while the pound slumped.
The yield – in effect the interest rate – rose by as much as 0.2 percentage points to trade close to 4.7%, climbing by the most in one day since October 2022 when investor confidence in Britain remained shaken after Truss’s mini budget.
Highlighting investor unease over the government’s tax and spending plans, the pound also fell by more than 1% against the US dollar.
Downing Street later insisted that Reeves would remain in her post and had not offered her resignation after a major rebellion by Labour MPs forced the government to withdraw a planned £5.5bn cut to disability benefits.
However, investors warned the backtracking, which follows an earlier U-turn on winter-fuel payments for pensioners costing £1.
