Closing post: Bond panic eases as governor calls for calm
Time to wrap up….
UK government borrowing costs have fallen today, as calm returned to the bond markets.
The yield, or interest rate, on Britain’s 30-year bonds has dropped back to 5.6% tonight. Earlier this morning, they traded at a new 27-year high of 5.75%.
The drop should cheer the UK Treasury, as it takes some of the pressure off chancellor Rachel Reeves. However, long-term yields do remain high.
America’s long-term borrowing costs also fell this afternoon, after the 30-year US Treasury yield hit 5% for the first time since July.
Bank of England governor Andrew Bailey told MPs that it was important “not to over-focus” on the 30-year bond rate, after Tuesday’s jump in borrowing cost dominated the headlines yesterday.
Bailey also warned that threats to the US Federal Reserve’s independence are “very serious”.
Asked about President Donald Trump attacks on America’s central bank, he said:
“This is a very serious situation, I am very concerned.”
Bailey also warned the Treasury committee that it was very hard to predict when the Bank might be able to cut interest rates again.
He told MPs:
“There is now considerably more doubt about when and exactly how quickly we can make those further steps.”
Reeves has set the date of the autumn budget at 26 November, meaning investors, businesses and the public must wait more than two months to learn what taxes are rising, and which spending may be cut.
Here’s the rest of today’s business news:
Updated
European markets close higher as bond panic eases
Stock markets across Europe have closed higher, as investors welcome calmer trading in the bond markets after yesterday’s turmoil.
In London, the FTSE 100 blue-chip share index has risen by 61 points, or 0.67%, to 9177 points, recovering most of Tuesday’s 80-point fall.
Dan Coatsworth, investment analyst at AJ Bell, sums up the day:
“The FTSE 100 enjoyed a more settled session after yesterday’s drama that knocked equities off course. Precious metals miner Fresnillo hit a new record intraday high as investors remained hungry for ways to play a rising gold price.
Fresnillo has now delivered more than 200% share price gains so far this year, proof that the UK stock market can put up a good fight against go-go-growth stocks in the US and line investors’ pockets with gold and silver.
In Frankfurt, Germany’s DAX gained 0.5%, while France’s CAC is up almost 1%.
Updated
Bank's QT decision is 'open', Bailey says
Today’s session in parliament also touched on the Bank of England’s quantitative tightening programme, through which it is selling bonds bought during the financial crisis and Covid.
The BoE has been criticised for making billions of pounds of losses on QT, because it is selling bonds at lower prices than it bought them.
Q: Would you consider suspending QT due to market conditions?
Bailey replies that the upcoming decision on QT is an ‘open’ one, which policymakers will make later this month, saying:
“Just to reassure you, the decision we’re going to take in the next few weeks is an open decision, very clear, nothing closed about that decision.”
Bailey also denies that central banks who have suspended QT will make smaller losses as a result – explaining that they will still pay “through the carry cost of the bonds” (as the rates on bonds bought through quantitative easing are lower than are on sale today).
Just to be clear, there isn’t a sort of pot of gold out there that isn’t isn’t there if you do one thing, but is there if you do another thing.
On the trade wars, Andrew Bailey told MPs that US trade tariffs were not impacting British inflation as much as feared.
He told the Treasury Committee:
“I don’t think we’re seeing inflationary pressures coming through from the tariff situation as of yet.
“Let’s not underestimate the significance of this, but it isn’t as big a part of the story from the point of view of UK inflation as ... we feared it might be.”
He points out that tariff levels are lower than the Bank had expected back in May.
He also reminded MPs that, “thank goodness” the UK is not facing the same inflationary pressures in 2021 and 2022, when food price inflation peaked at 19%.
Updated
Pound rises after Bailey's interest rate comments
Sterling has risen against the US dollar after Bank of England governor Andrew Bailey suggested that interest rate cuts could come at a slower pace than previously expected.
The pound is now up almost half a cent against the dollar at $1.343, as traders digest Bailey’s comment that there is “considerably more doubt” about the timing of the next cut.
The dollar is generally weaker today, too, down 0.3% against a basket of currencies.
We also have a worrying sign that America’s jobs market is weakening.
US job openings fell in July to the lowest in 10 months, according to the latest JOLTS survey.
The number of available positions decreased to 7.18 million from a downwardly revised 7.36 million in June, the Bureau of Labor Statistics reported.
JOLTS DATA FOR JULY WAS A MISS!
— Lumida Wealth Management (@LumidaWealth) September 3, 2025
US job openings dropped to 7.2M in July 2025, down 176K from June’s 7.4M.
Job openings rate fell to 4.3%. pic.twitter.com/vzpKaqlwLR
Bailey: Don't “over focus” on the 30-year bond rate
Q: There’s a lot of concern in the news about bond markets. Why do you think the UK has higher bond yields than France, even though the French debt to GDP ratio is higher, and the government is at risk of collapse?
BoE governor Andrew Bailey thumps this delivery into the stands, pointing out:
We’ve got quite a substantially higher short term interest rate than France, because France obviously is anchored by the ECB rates, which is 2% currently. That’s an important point.
[UK interest rates are 4%].
But having said that, Bailey points out that there has been a steepening of yield curves across the whole market [ie, longer-dated borrowing costs have risen faster than short-dated].
He then makes two points.
First, he says the UK is “actually in the middle of the pack” for steepening; Germany and Japan’s rates have gone up considerably more than the UK, while the US has risen less.
Secondly, Bailey insists that we shouldn’t “over focus” on the 30-year bond rate [which hit the highest level since 1998 this morning].
He says:
It’s a number that gets quoted a lot. It’s quite a high number. It is actually not a number that is being used for funding at all at the moment.
Bailey then explains that the structural demand for long, dated, long maturity bonds has gone down, as defined benefit pension schemes have been gradually closed.
He adds:
“There is a lot of dramatic commentary on this but I wouldn’t exaggerate the 30-year bond rate.”
[Reminder: some investors also played down the threat from rising 30-year borrowing costs this morning – see here]
Updated
'Considerably more doubt' over future cuts, Bank of England governor warns
BoE governor Andrew Bailey then warns MPs that there is “considerably more doubt” about when the Bank will be able to cut interest rates again.
Bailey, who was in the narrow majority voting for last month’s cut, says:
Although we’ve taken a further step, and although I think that the path will continue to be downwards, gradually over time, because policy is still restrictive…. there is now considerably more doubt about exactly when and how quickly we can make those further steps.
That’s, that’s the message I wanted to get across. Now I think actually, judging by what’s happening to market pricing, I think that message has landed.
[The City no longer expects another rate cut this year, and the next cut is only fully priced in by next April].
BoE policymaker Alan Taylor then explains that he initially voted for a large, half-point, cut in interest rates in August due to a “constellation of risks”.
He points out that wage inflation is coming down, and says he has faith that the disinflation process is continuing in the UK.
The tariffs brought in by the US are another factor – and will lead to downward pressure on prices as goods initially meant for America are shipped to the UK and Europe instead.
Taylor also explains that he wants to see “four or five” interest rate cuts a year, and did not believe inflation expectations were flashing red.
He says:
“Overall, I’m more in the four plus one camp in terms of how many cuts per year, maybe four or five, rather than four minus, four or three.”
[So far, the BoE has cut rates three times this year – in February, May and August.]
Updated
Bank of England policymaker Megan Greene told MPs that she voted to hold interest rates last month for two reasons.
First, she believes the risk of higher inflation persistence has increased, while the risk of weaker economic demand has decreased.
Greene cites rising food inflation, saying there is a risk that this leads to higher household inflation expectations, which could feed through to higher wage expectations.
BoE's Bailey 'very concerned' about threats to Federal Reserve's independence
The governor of the Bank of England has warned that Donald Trump’s attacks on the US Federal Reserve are damaging, and could lead to higher inflation and interest rates.
Testifying to parliament’s Treasury Committee, Andrew Bailey reveals he is “very concerned” that the independence of central banks is being threatened, following Trump’s repeated criticism of Fed chair Jerome Powell and his attempt to fire governor Lisa Cook.
He warns that undermining central banks could hurt consumers and businesses, as it would damage attempts to keep price rises under control.
Asked about the attacks on the Fed’s independence, Bailey says it is a very serious situation, and that he is “very concerned”.
Bailey says:
“The Federal Reserve is the central bank for the world’s strongest economy... It has built up a very strong reputation for its independence and for its decision-making.”
Bailey explains that monetary stability and financial stability, the key functions of central banks, “underpin the foundations of policy” made by governments.
He warns:
“I think what we’re now seeing is people saying we should be able to trade off the foundations for those other decisions, and I’m afraid I just think that is a very dangerous road to go down.
The job of an independent central bank is to provide those foundations, to take independent decisions to do it... that’s how it works, that’s how it should work.
And so the threats to that I take very seriously.”
Q: Are you saying, governor that if we lose the independence of central banks, it will lead to higher prices, higher mortgages and higher costs of borrowing for social housing and business?
“Yes,” Bailey replies. “There are costs to it”.
[Trump has repeatedly complained that under Powell the Fed has kept interest rates too high, and not cut them since he won re-election].
MPs quiz Bank of England
The treasury committee are quizzing top policymakers from the Bank of England now, to discuss its decision to cut interest rates last month.
They’re hearing from governor Andrew Bailey, desputy governor Clare Lombardelli, and external MPC members Alan Taylor and Megan Greene.
Last month’s vote was historic, as two votes were needed! That’s because four of the nine committee members voted to hold rates, four wanted a quarter-point cut and one – Taylor – plumped for a half-point cut.
Q: Why did you not use your casting vote, governor?
Bailey says there were two reasons why he chose a second vote, between no change and a quarter-point cut.
Firstly, it was clear where the “balance of preferences was”
Second, while Bailey was one of the five who voted to cut, had he not been then he would have had to either go against the majority decision, or vote both ways.
BoE's Taylor: soft landing is approaching
Bank of England policymaker Alan Taylor has told MPs the UK economy is getting closer to a “soft landing”.
However Taylor, one of the dovish members of the Bank’s monetary policy committee, also warns we are at a “fragile” moment.
In his annual report to parliament’s Treasury Select Committee, Taylor says:
“Despite being buffeted by new shocks, we are getting closer to that soft landing (for the UK economy) now, but we are also in a fragile moment, and monetary policy will need to be carefully calibrated in the coming months to keep us on track.”
[A soft landing is a situation where a central bank succeeds in bringing down inflation without triggering a recession].
The London stock market has clawed back a decent chunk of yesterday’s losses.
The FTSE 100 share index has risen by 52 points, or 0.6%, today to 9169 points. Mining stocks, such as Fresnillo (+5.7%), Antofagasta (+3.8%) and Anglo American (+3.3%), are leading the risers.
Yesterday it fell by 80 points, as wobbles in the bond market hit equities.
US-EU trade deal faces opposition
A bumpy ride is ahead for the EU’s summer trade deal with Donald Trump with MEPs threatening to oppose parts of the agreement.
The European parliamentary international trade committee is demanding changes to the tariff deal the European Commission approved with the US last month, warning it can block a deal that will not be legally binding without MEPs support.
German MEP Bernd Lange, chair of the European parliament’s international trade committee, has said the deal puts jobs in the EU in danger, is illegal under World Trade Organization rules, unfairly offers the US discounted tariffs, and should – if legal - be available to the 165 other non-EU countries that trade with the EU under “most favoured nation” rules.
Lange said:
“The whole so-called deal is not really a deal. It’s an agreement on some elements, but it’s not legally binding and is not fixed.”
At a press conference in Brussels on Wednesday, Lange questioned how the Commission had come up with non-tariff quotas for US exporters allowing them, for instance to sell 500,000 tonnes of nuts and 3,000 tonnes of bison beef, in the EU.
“There was no impact assessment, so we have to look really clearly [at] how these figures appeared,” he said.
He also said the deal was a bad look for the EU’s relationship with other countries with which the bloc is negotiation, arguing:
“If we are reducing tariffs, it is valid for all 165 countries and especially to the countries in the global south.”
His remarks came as the European Commission submitted its final proposals for a trade accord with the Mercosur trading group in Latin America including Brazil and Argentina (see earlier post).
Lange acknowledged that maintaining diplomatic and defence relations with the White House was an important factor in the August trade deal but said a more muscular approach could still achieve improvements for the US.
He said:
“Of course the parliament can block legislative proposals, so we did it in the past. But this is not the major task we want to reach the best [deal] for the economy and the people in Europe. And at the moment, we have a situation that this proposal by the commission is really bringing workplace in danger.”
He also questioned the commitment by the EU to buy $750bn in energy from the US over the next three years, the equivalent of $250bn a year compared to the current $100bn a deal.
“What will happen if after one year we have perhaps [only] $150bn purchased from the US. What will Mr Lutnick say then,” he said, in reference to the US commerce secretary.
Starmer: Fiscal rules are non-negotiable
Over in parliament, Keir Starmer has insisted that the UK’s fiscal rules are “non-negotiable”, as he is questioned at Prime Minister’s Questions.
Starmer also pointed out to MPs that other country’s borrowing costs have also been rising (true).
Opposition leader Kemi Badenoch points out, though, that the UK’s borrowing costs are now higher than Greece’s* – and accuses Rachel Reeves of having “maxed out the country’s credit card” after changing the fiscal rules last year, which she says pushed up borrowing costs.
Badenoch also says borrowing costs are going up because the markets can see he is “too weak to control spending”.
My colleague Andrew Sparrow has full coverage of PMQs here:
[*- eurozone bond yields are lower than the UK’s, partly because eurozone interest rates are lower, and partly because inflation is lower].
Tusk: Mercosur deal opponents will seek to mitigate, not block
France and other countries opposed to today’s proposed trade accord between the EU and the Mercosur group of Latin American group of countries (see earlier post) will seek to mitigate its impact rather than block it, the Polish prime minister Donald Tusk has said.
France, Poland and Italy have opposed elements of the deal in the past on the grounds it brings unwelcome competition to EU farmers. But Tusk said they are now working to find solutions to lessen its negative effects.
Tusk told a news conference this morning:
We agreed that since the French don’t want to join us in building this blocking minority, they should at least prepare a defence mechanism.
This means that if any negative signals appear ... the European Commission should immediately implement defence mechanisms, ie, reimpose tariffs.
Under the deal, which is being formally put to the European Commission college of Commissioners today, Mercosur duties on 91% of EU exports will be removed over a period of 15 years.
In exchange, the EU will progressively remove duties on 92% of Mercosur exports over a period of up to 10 years.
Mercosur will also remove duties on EU agriculture-based products, such as the 17% on wines and 20-35% on spirits.
For more sensitive farm products, the EU will offer increased quotas, including 99,000 tonnes more beef, while Mercosur countries will give the EU a duty-free 30,000-ton quota for cheeses.
There are also EU quotas for poultry, pork, sugar, ethanol, rice, honey, maize and sweet corn and for Mercosur on milk powders and infant formula.
Further, the deal recognises 350 geographic indications to prevent imitation of certain traditional EU foodstuffs such as Parmigiano Reggiano cheese.
Updated
The UK budget, now inked in the diary for 26 November, will be a “rather late fiscal event”, says Rebecca Williams, divisional lead of financial planning at wealth managers Rathbones.
The long wait will only prolong the uncertainty about Rachel Reeves’s plans, Williams explains:
With public finances stretched thin, the delay underlines that ministers are in full-on thinking mode ahead of what is shaping up to be one of the most consequential Budgets in a generation. It seems inevitable that some form of tax rises – stealth or otherwise – will be unveiled as the government looks to balance the books.
“For households, the long wait only prolongs uncertainty at a time when many are still grappling with the cost-of-living squeeze. Markets and savers alike dislike being left in the dark, and it is little wonder we’ve seen a surge in queries around pensions taxation, estate planning, and whether it remains worthwhile to hold on to buy-to-let properties amid growing speculation.
Experts play down panic over bond sell-off
Some investors are urging people not to panic about the sell-off in the bond markets.
As 30-year UK borrowing costs ease back to yesterday’s levels (which were the highest since 1998) after this morning’s jump, some experts are pointing out that September typically brings a glut of new debt to the markets (after a quieter summer). That can put upward pressure on yields.
Also, the pressures have mainly been seen at the long end of the borrowing curve, rather than benchmark 10-year debt.
As I type, the UK 30-year bond yield has now dipped back to 5.66%, having hit 5.75% earlier this morning. That’s slightly below yesterday’s levels:
But even so, bond investors do appear more concerned about the scale of global government borrowing, and about how politicians are strugging to push through spending cuts.
Fred Repton, senior portfolio manager on the global fixed income team at investment manager Neuberger, explains it’s important to put the rise in yields in context.
Repton explains:
Yesterday was the first day ‘back to school’ for global investors as Labour Day in the US ends the summer holiday season. There was a notable pick-up in new issuance in bond markets that may have surprised bond market participants slightly.
In fact, yesterday was the largest issuance day on record in Europe as a whole. For the UK, the Gilt syndication yesterday and the linker tomorrow represent the largest UK sovereign issuance on record. As such, especially with expectations of lower rates having ramped up following Jackson Hole, the issuance has caused turbulence in the bond markets.
However, one should not draw too many conclusions from one extremely active day for issuance. What can be said though is that market participants are again focused on deficits and political risk and this theme is likely to continue far into the year as the UK budget is now set to be on November 26, a long time from now.
David Roberts, head of fixed income at Nedgroup Investments, says there definitely isn’t a ‘buyers’ strike’ on UK gilts:
So, nobody wants to buy bonds? That’s what some headlines might suggest.
But yesterday told a very different story, as the UK saw its largest-ever gilt issuance with £14bn issued, met with record-breaking demand of £150bn.
In the US, corporate bond issuance hit a record of around $46bn and, across Europe, sovereign and corporate debt supply exceeded €40bn, another milestone.
Now, you can interpret this in two ways. Firstly, there’s a surge in supply, which can pressure prices. Secondly, and more importantly, there’s extraordinary demand - investors are actively seeking yield in a high-rate environment.
Gilt prices fell a little again today. Bash the UK as much as you like, the fall was largely in reaction to yet more upbeat economic numbers. This time in the shape of revised PMI figures, showing the UK growing at a healthy rate.
What you definitely can’t say is that there’s a buyers’ strike. The numbers speak for themselves.
Chris Beauchamp, chief market analyst at global trading and investing platform IG, says people should only “really start to worry” if the yield on 10-year UK bonds shoots higher:
“The ructions in the gilt market have continued, as early trading takes the 30-year yield up above yesterday’s high. Notably however the 10-year yield, while at the highs of the year, has not seen quite the same panicky reaction as its longer-dated cousin.
Bond investors do seem to be sending a message to the UK government, one that Westminster has been aware of for some time. Only when the ten-year shoots higher should we really start to worry, and for now the government has the breathing space to take another hard look at the public finances - a combination of taxation and spending cuts remains the only way to retain credibility.”
Neil Wilson, UK investor strategist at Saxo Markets, says the moves in bond markets remain ‘fairly orderly’. He explains:
However, this is probably more of a slow-motion train wreck than the flash in the pan Truss episode, and far more reflective of fundamentals. The UK 30yr yield hit a 27-year high clear of 5.7%, and has moved higher again this morning to a high of 5.756%.
It’s not just the UK of course – the US 30yr just breached 5%, a key threshold you feel. Worries that those vast tariff revenues might need to be repaid could have been a factor in the US following the court ruling there.
That’s heaped on deeper worries about Fed independence and economic policy uncertainty, but perversely I guess it means that Trump winning a swift Supreme Court decision would be good for Treasuries. Yields on French, German and Japanese bonds have also shot higher as the entire complex has looked increasingly shaky.
Updated
EU moves closer to Mercosur trade deal
The EU is a step closer to closing a controversial trade deal with South America’s Mercosur bloc first mooted 25 years ago.
The deal, which will allow certain agriculture products from countries including Argentina and Brazil into the EU duty free will be presented to the European Commission college of commissioners later today for approval.
Under the proposal the Mercosur countries will also remove duties on 91% of EU exports, including for cars from a current 35% over a period of 15 years. The EU will progressively remove duties on 92% of Mercosur exports over a period of up to 10 years.
But it must be approved by EU members and is expected to resurface divisions between Germany and France, which has strongly opposed the deal in the past, arguing farmers needed protection rather than more competition.
The arrival of Donald Trump in the White House means others who have in the past sided with France, such as Ireland, may now give it their support.
The European Union and the bloc of Argentina, Brazil, Paraguay and Uruguay dragged the free trade agreement over the line last December, some 25 years after negotiations were launched.
Updated
UK services sector growth hits 16-month high
Just in: The UK service sector grew more strongly than first estimated last month.
Data firm S&P Global has reported that service sector output rose at the steepest rate since April 2024 in August.
Output growth accelerated, and new orders rebounded, they say, lifting business optimism rises to a 10-month high.
This pushed the S&P Global UK Services PMI Business Activity Index up to 54.2 in August, up from 51.8 in July.
That’s the highest reading for 16 months, and better than the ‘flash’ reading of 53.0 recorded in mid-August.
Encouragingly, UK services firms reported the first rise in new export orders since March, led by rising sales to clients in the EU and US.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“August data highlights a welcome acceleration of output growth and a swift rebound in order books after July’s dip, leaving the UK service economy on a much stronger footing as the end of summer comes into view.”
UK Services PMI Hits 16-Month High in August
— Rufas Kamau ⚡ (@RufasKe) September 3, 2025
The UK Services PMI rose to 54.2 in August (up from 51.8 in July), marking the fastest growth in 16 months. Business activity and new orders rebounded strongly, supported by lower borrowing costs and improved domestic and export… pic.twitter.com/rDyz3KEN0p
30-year gilt yields ease, after hitting 5.75%
Back in the bond market, UK government borrowing costs have dipped back a little after hitting their highest level since 1998.
The yield, or interest rate, on 30-year gilts jumped as high as 5.75% at 8.45am today, but has since slipped back to 5.71%, still a little higher than yesterday’s close.
Budget date is set for 26 November
Newsflash: Rachel Reeves’s autumn budget will take place on 26 November, the Treasury has announced.
The late November budget date will give the chancellor time to prepare the ground for potential tax changes, and address the likely budget ‘black hole’ that could have been widened by the sell-off in the bond markets.
My colleague Richard Partington explains:
Reeves is understood to have been exploring several tax-raising measures over the summer months amid concern that rising borrowing costs, a sluggish growth outlook, higher inflation and welfare U-turns could expose a shortfall in the government finances worth up to £40bn.
The chancellor and the prime minister have, however, committed to sticking to Labour’s manifesto promise not to raise taxes on “working people”, including through income tax, national insurance and VAT.
Updated
The latest healthcheck on Europe’s economy won’t calm fears that growth remains sluggish.
A survey of purchasing managers at euro area companies has found that the eurozone economy continued to expand at a sluggish pace last month, with growth slowing in the services sector.
Data firm S&P Global’s Composite PMI Output Index, which tracks activity across the economy, has risen to 51.0 for August, up from 50.9 in July. That’s a 12-month high, but still only slightly above the 50-point mark showing stagnation.
Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, says:
Riding a bike too slowly can make you tip over. That’s the risk facing the eurozone. Yes, the economy has been growing since the start of the year, but the pace is painfully slow.
In August, the HCOB Composite PMI Business Activity Index stood at 51.0 – barely above stall speed. Political tensions in France and Spain, uncertainty around the EU-US trade deal, and ongoing troubles in the key automotive sector aren’t helping. On the bright side, increased defense spending across Europe and Germany’s infrastructure program offer hope that the economy might keep moving forward – and avoid falling off the bike.
Right now, the services sector feels more like stagflation than recovery. The rate of expansion has slipped even further from an already slow pace, while cost pressures have increased and selling price inflation nudged slightly higher.
Updated
We should note that the sell-off in UK government bonds has focused on longer-dated debt.
Five-year gilts, for example, are little changed today. The yield on these shorter-dated UK bonds did rise yesterday, to nearly 4.2%, but that’s only the highest level since late May.
US 30-year yields hits 5%
America’s long-term borrowing costs are also rising.
The yield, or interest rate, on US 30-year Treasury bonds has hit 5% today, for the first time since July, as the global bond sell-off refuses to abate.
Trouble coming, US 30y Treasury yield now is 5%。 #StockMarket pic.twitter.com/Gf9yxObDfC
— Viga Liu, CFA | Equity Analyst (@Viga_Analyst) September 3, 2025
Reeves could set UK budget date for 26 November
Speculation is growing that the eagerly-awaited UK autumn budget may be delivered on 26 November.
Huffington Post UK reported last night that Rachel Reeves has pencilled in November 26 for the date of the Budget, and that it won’t happen before mid-November at the earliest.
The government must give the Office for Budget Responsibility at least 10 weeks notice to conduct its assessment of the government’s tax and spending plans, so the OBR can give its verdict once the budget speech has been delivered.
Bloomberg say Reeves is expected to announce the November date for unveiling her spending plan later today.
City consultancy Capital Economics predicted yesterday that Reeves could need to fill a ‘black hole’ of between £18b and £28bn, likely mostly through higher taxes.
Rising bond yields would inflate that black hole, by adding to the projected cost of UK borrowing.
FYI, the OBR has a handy ready reckoner to estimate the fiscal impact of higher borrowing costs... 👇
— Julian Jessop (@julianHjessop) September 2, 2025
Gilt yields are now about 0.5 percentage points higher than assumed in the March forecast. If sustained, this would add c£6bn to the 'black hole'.https://t.co/6XbbYJTPDo pic.twitter.com/Sep1KyppjD
Uk 30-year borrowing costs hits new 27-year high
Britain’s long-term borrowing costs have just hit a new 27-year high, as the pressure on Rachel Reeves refuses to abate.
The yield, or interest rate, on 30-year UK gilts has risen to 5.747% this morning, above the high of 5.723% hit yesterday.
This rise, during a global sell-off of long-dated government debt, continues to highlight the challenge facing the chancellor ahead of the autumn budget.
Ten-year gilt yields, which are more representative of the rate at which the British government now borrows, have risen to their highest since January this morning.
Rising borrowing costs will intensify the pressure on the chancellor to announce spending cuts or tax rises, to satisfy the UK’s fiscal watchdog, the Office for Budget Responsibility, that she is keeping within the fiscal rules.
Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK, says, investors are clearly worried about the long-term trajectory of the UK debt burden.
Pugh fears the UK is close to a ‘debt trap’, but doesn’t believe it will be foreced into an IMF bailout as some have suggested, explaining:
If Chancellor Rachel Reeves is tempted to loosen [the UK fiscal rules] in the Autumn Budget in a way that raises the UK’s debt trajectory, then financial markets are likely to push gilt yields even higher, further increasing the interest-rate bill.
“This is increasingly important because the UK is arguably close to a debt trap. That happens when the interest rate on a country’s debt is higher than its nominal growth rate. The result is that the debt pile grows faster than the economy. If that happens, then the debt-to-GDP ratio grows every year, even if borrowing doesn’t increase, making it extremely hard to escape without painful measures.
“The cash size of the UK economy is likely to grow by 3.5–4% a year (1.5% real growth, plus 2.5% inflation), over the next few years. But, the average interest rate on UK government debt is about 3.9%. This leaves very little room for error.
“That said, warnings of a 1970s-style economic crash and a trip to the International Monetary Fund (IMF) are overdone.
The UK’s recent tax rises mean that the debt-to-GDP ratio is likely to stabilise over the rest of the decade rather than continue to rise. What’s more, inflation and interest rates will probably fall a little further next year, helping to ease the burden. In any case, the UK has the second-lowest debt-to-GDP ratio in the G7, so there is room for it to rise further if needs be in the short-term.
Updated
Gold at new record high
The gold price has climbed to a new record high today, as investors seek out a safe haven.
The spot price of gold has hit $3,546.99 per ounce, on track for its seventh daily rise in a row.
Gold’s role as a hedge against inflation and fiscal concerns “remains firmly in play”, says Jim Reid, market strategist at Deutsche Bank.
#Gold held a six-day rally that pushed prices to an all-time high on Tuesday, as the prospect of US interest-rate cuts boosted the metal’s appeal and traders sought safety following a selloff in equity and bond markets.https://t.co/bh67K6NrEL pic.twitter.com/zk6F2eKxtg
— Jack Hoogland (@jack_hoogland) September 3, 2025
Bad day on Australia's stock market
Australia’s stock market has suffered its biggest one-day drop since April today, as the bond sell-off rattles traders.
The S&P/ASX share index has fallen by 1.8% today, to its lowest level since early August, despite new data showing Australia’s economy grew faster than expected in the second qwuarter of the year.
Kyle Rodda, senior financial market analyst at Capital.com, argues that the markets were due a pull back:
Seasonality has entered the narrative: for US equities, September is the worst month of the year for the S&P 500, with an average drawdown of nearly 2% over the past 10 years.
But from an Australian and fundamental standpoint, valuations have been eye-watering and far beyond what could be justified by the earnings that were served up by companies last month. On top of that, higher global bond yields are putting the squeeze on global equity prices.
Yields are being driven by a combination of factors: political risk in the US and Europe, loose and arguably unsustainable fiscal settings across several major sovereigns, and upside risks to inflation in the States as traders price-in the risk of a US Fed being stacked with Trump-loyal policy doves.
Shifting rate expectations in Australia probably also contributed to the ASX200’s sell-off. Australian GDP data was stronger than expected, with annual growth rising 1.8% in the June quarter.
Pound under more pressure
The pound is dropping in early trading, adding to sharp losses yesterday.
Sterling has dropped by a quarter of a cent to $1.3366, close to the one-month low touched on Tuesday.
Yesterday the pound lost one and a half cents, its biggest daily drop since April, as the drop in government bond prices rocked the markets.
Introduction: Global bond sell-off hits Japan
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The global sell-off in longer-term government debt is continuing, as concerns mount over fiscal sustainability and the health of the global economy.
After losses across the bond and equity markets yesterday, there are fresh falls in Asia-Pacific markets today.
Japan is now in the firing line from bond vigilantes, who are driving up borrowing costs (yields) by selling government debt, pushing down prices.
The 30-year Japanese government bond yield has hit an unprecedented 3.255% today, Reuters reports, following the jump in UK, US and eurozone bond yields on Tuesday
Yields on Japan’s 20-year government bonds rose to levels last seen in 1999.
Bond yields especially on super-long-dated 30-year tenors have been soaring around the world, with investors anxious about the scale of debt in countries from Japan to the US. The 30-yr JGB yield hit an unprecedented 3.255%, ffg a run-up in similarly dated gilts and Treasuries https://t.co/LpbRqlDnSN pic.twitter.com/H8MrsBTbAF
— Kong Kong Kubs (@3benson) September 3, 2025
The sell-off appears to be being driven by several factors, including concerns over rising government debt levels, opposition to measures to cut borrowing, sticky inflation, and economic growth prospects.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
Investors are demanding higher returns to hold bonds exposed to both inflation risk and elevated debt levels. Higher yields, in turn, push up borrowing costs for companies and weigh on valuations.
As a result, equities and corporate bonds also kicked off the week on a weak note.
Bond investors will be watching London and Paris closely today.
Rising bond yields are a political headache for Rachel Reeves, as it eats into the UK chancellor’s headroom to have debt falling in five years’ time. It could force Reeves into further tax rises, despite concerns that this would weaken growth, or spending cuts, despite opposition from her own party.
The potential collapse of the French government next week, in a row over proposed spending cuts, are also worrying investors.
Mujtaba Rahman, managing director for Europe at Eurasia Group, explains:
The French Prime Minister François Bayrou will lose on Monday 8 September a gamble that he was never likely to win and will almost certainly be ejected from office by a parliamentary confidence vote of his own choosing;
President Emmanuel Macron has ruled out a new legislative election—for the time being—and will appoint his fifth Prime Minister in 21 months, almost certainly from within his center and center-right coalition.
The new PM will be obliged to make concessions on Bayrou’s ambitious plans to cut 0.8% of GDP (nominally €43.8bn) from France’s deficit next year.
The agenda
9am BST: Eurozone service sector PMI for August
9.15am BST: Bank of England deputy governor Sarah Breeden keynote speech at a conference on innovation in money and payments conference
9.30am BST: Eurozone service sector PMI for August
2.30pm BST: Treasury Committee hearing with Bank of England policymakers
3pm BST: JOLTS survey of the US jobs market
Updated
