Bank of England in the City of London on October 8, 2024 in London, United Kingdom.
Mike Kemp | In pictures | Getty Images
LONDON – British bond yields rose sharply on Thursday after the ruling Labor Party unveiled a sweeping package of tax hikes and increased borrowing.
The two-year Treasury yield rose 18 basis points at 2:13 p.m. London time, having briefly broken 4.5% at the start of the session for the first time since Labor took office in early July. The 10-year yield rose 15 basis points to 4.497%.
Yields had already risen on Wednesday, shortly after Finance Minister Rachel Reeves announced the budget, which included 40 billion pounds ($52 billion) worth of tax hikes and a commitment to significantly higher borrowing in the coming years.
Yields move in the opposite direction to prices.
“What immediately stands out is how much borrowing is expected to rise over the next few years,” analysts at ING said in a note on Wednesday in response to rising yields.
“We have been arguing for some time that the government had no choice but to increase real spending. But what has been delivered is undoubtedly higher than many expected just a few weeks ago.”
The analysts cited the independent Office for Budget Responsibility's forecast that borrowing will be an average of £36 billion higher each year over the next five financial years, given how long it will take for the additional tax revenue to arrive.
This is a breaking news story and will be updated shortly.
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