AJ Bell: UK borrowing costs soar ahead of local elections
The prospect of a period of political upheaval is taking its toll on UK bonds today, says AJ Bell head of financial analysis Danni Hewson.
She explains:
The yield on 30-year gilts has shot up, closing at the highest level since May 1998 as investors weigh up how fiscal policy might be impacted if a massive Labour drubbing in this week’s local elections results in a vote of no confidence for Keir Starmer.
“A new PM would likely mean a new chancellor, and one who might be more inclined to turn on the spending taps at a time when the country is faced with stagnant growth and another cost of living crisis.
“Although this risk premium is a symptom of nerves about rising inflation as the situation in the Middle East remains highly uncertain, it is being felt more acutely in the UK as the country has proven more susceptible to energy price shocks.
“Far from just being numbers on a spreadsheet, it makes doing stuff more expensive for the government and increases the interest paid on the huge debt pile run up during recent economic struggles. This limits what could be done by any keen new broom sweeping through Downing Street, especially if the current crisis delivers on the worst-case scenario set out by the Bank of England last week
Closing summary
Time to wrap up…
The UK government’s long-term borrowing costs have hit their highest level since 1998, amid rising fuel prices and concerns about political stability.
The yield – effectively the interest rate – on 30-year UK government bonds (gilts) hit 5.77% at lunchtime on Tuesday, up 0.13 percentage points – exceeding the 27-year high reached last September.
Yields have been rising across leading economies amid renewed fears over rising inflation, after US efforts to escort ships through the strait of Hormuz prompted Iranian reprisals.
But the UK has been hit particularly hard by higher borrowing costs since the onset of the conflict – with some investors blaming uncertainty about the outlook for Keir Starmer’s government.
Higher government borrowing costs will eat away at the headroom the chancellor, Rachel Reeves, has built up against her fiscal rules, in the Office for Budget Responsibility’s forecasts for tax and spending.
In other news…
HSBC has reported a $400m “fraud-related, secondary, securitisation exposure” in the UK, related to its investment banking division.
The loss helped to pull down HSBC’s profits, which was also hit by a jump in the potential losses it could see on soured loans to $1.3bn.
UK car sales have jumped, but the country is still on track to miss its targets for electric car take-up.
Rachel Reeves had a barney with her US counterpart, Scott Bessent, over the Iran war last month, it has emerged.
The chancellor and the US treasury secretary argued in person during the spring meetings of the International Monetary Fund, according to people briefed on the exchange, confirming a story first reported by the Financial Times.
UK long-term borrowing costs have ended the day at what looks to be a 28-year closing high.
After hitting their highest level since 1998 today, UK 30-year bond yields have closed at 5.74% tonight.
The UK stock market has closed in the red, with the FTSE 100 index ending the day down 145 points or 1.4% at 10,219 points.
That’s its lowest close in almost a week, after hitting an intraday one-month low this afternoon.
Gambling group Entain (-6.4%) finished as the top faller, followed by HSBC (-5.8%) and Marks & Spencer (-4.75%).
Concern that the Middle East conflict is continuing without a resolution has pushed UK borrowing costs higher today, says Pooja Kumra, rates strategist at TD Securities.
Kumra explains (via the Financial Times):
“There is just no sign of this war ending anytime soon.
Gilts certainly get hit not just on inflation worries, but also brewing political risks ahead of local elections.”
Britain’s stock market has hit its lowest level in over a month.
The FTSE 100 share index is now down 167 points at 10,196 points, a drop of 1.6%, and its lowest level since 1 April.
HSBC continues to lead the fallers, now down 6.7%, after reporting a drop in profits this morning.
The US jobs market appears to have shrugged off the early economic turmoil caused by the Iran war.
The number of job openings at US companies dipped slightly in March, to 6.866m, new data shows, down from 6.922m in February.
The latest JOLTS report also shows that the job openings rate dipped, from 4.2% to 4.1%.
The number of job openings decreased in professional and business services (-318,000) but increased in finance and insurance (+98,000), the US Bureau of Labor Statistics reported.
Stocks have opened a little higher on Wall Street, as investors noted that oil prices have dipped back today.
The Dow Jones Industrial Average gained 95.2 points, or 0.19%, at the open to 49,037.12.
The S&P 500 rose by almost 0.5%, while the tech-focused Nasdaq gained 0.76%.
Franco Manca restructuring wins creditors' approval
Pizza chain Franco Manca has won approval from creditors for a restructure under which 16 of its 70 restaurants will close with the likely loss of about 225 jobs.
The sites to go include an outlet in Brixton, the south London suburb which the chain refers to as its “spiritual home” where it first opened as a market stall. Others to go include Bishops Stortford, Cheltenham, Didsbury in Manchester, Glasgow, Hove, Lincoln, Plymouth and London outlets including New Oxford Street, Tottenham Court Road, Bromley, Broadway Market in Hackney, Stoke Newington and Kilburn.
The restructure comes after the company said “external cost pressures” including increases in the legal minimum wage, business rates and employers’ national insurance contributions, meant a number of its restaurants were “no longer sustainable.”
The casual dining chain, is part of Fulham Shore, which also owns The Real Greek chain, and is owned by Toridoll, the Japanese operator of Wok to Walk and Marugame Udon, and restaurant sector investment fund Capdesia. The Real Greek is closing all but 19 of its 28 outlets after being bought out of pre-pack administration by Karali Group, the owner of the Côte restaurant chain, according to the Propel industry newsletter.
First ever Pret a Manger drive-thru opens near Warrington
Pret a Manger opened its first ever drive-thru on Tuesday in its latest bid to find fresh locations to trade.
The outlet in Warrington’s Oakwood Gate service station on the M6 near Warrington, will operate in partnership with service station specialist Motor Fuel Group, which already operates 35 of Pret’s 500 UK outlets. It will have seating for 48 people and EV charging points as well as a drive-thru service.
Ross Warnes, the president of Pret A Manger’s UK & Irish business, said:
“Travel hubs and roadside locations present a huge growth opportunity for Pret, making the launch of our first drive-thru a natural next step in our expansion. It’s all part of our strategy of meeting customers where they are.”
UK 30-year bond yields continued to rise after hitting their 28-year high his lunchtime, trading as high as 5.778%.
But they’ve now slipped back a little, to 5.75%.
That follows a drop in the oil price today, after Monday’s 5.8% jump, with Brent crude now down 2.6% at $111.40 a barrel.
[Reminder: The UK bond market is catching up with yesterday’s moves, after the bank holiday break yesterday].
Political uncertainty, rising energy prices and fiscal tensions are all pushing up UK borrowing costs, explains Lale Akoner, global market analyst at eToro:
“Gilt yields are rising because markets are starting to price in a more fragile UK outlook than headline data suggests. The combination of political uncertainty, energy sensitivity and fiscal pressure is forcing investors to reassess how much risk they are willing to carry and that adjustment is happening quickly ahead of local elections.
“Investors are responding by demanding a higher premium to hold UK debt, particularly at the long end, where sensitivity to political and economic risks is greatest. At the same time, demand dynamics have become less stable, amplifying moves in yields.
“If uncertainty persists, upward pressure on yields is likely to remain, with broader implications for borrowing costs and financial conditions across the economy.”
Shorter-dated UK bond yields up too
UK borrowing costs are rising across the board today, for short-dated as well as longer-dated bonds.
Two-year gilt yields are up 11 basis points (0.11 of a percentage point) to 4.533%, while give-year gilt yields are up 12bps to 4.6%.
These moves also reflect expectations that the Bank of England will raise rates two or three times to counter the threat of inflation created by the Iran war.
The money markets are currently fully pricing in two interest rate rises this year, with a third expected by February 2027.
What would a Labour leadership challenge mean for bond markets?
Who calls the shots on the bin collections in Sunderland, potholes in Hackney, or schools in Cardiff is not normally of interest to City traders in the multitrillion-pound sovereign bond market.
But for those dealing in UK government debt, Thursday’s local and devolved government elections are significantly more important than usual, amid speculation that a dire showing for Keir Starmer’s Labour party could topple him as prime minister.
“Usually local elections should not be a market relevant event, but this has indeed become one,” said Sanjay Raja, the chief UK economist at Deutsche Bank.
“Mainly as the repercussions, not just from a leadership challenge, but also any changes to fiscal policy and any pressure on fiscal rules the chancellor had signed up to. That is what the market is really signed up to.”
Here’s the full story:
RSM UK: Why local elections could reignite political risks for economy
A change in UK prime minister – or just the prospect of a new PM – could add to the risks facing the UK economy, a key factor why borrowing costs are rising ahead of Thursday’s local elections.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, explains why the markets could react badly if Labour have a bad election (as appears likely):
Firstly, in the near-term, speculation over when Sir Keir Starmer will be replaced would be enough to raise uncertainty and dampen activity by itself. Second, a messy leadership contest that opens Pandora’s box of potential tax hikes would raise uncertainty even further, potentially prompting firms to cut back on investment, and households to ramp up savings. Indeed, speculation at the last two budgets about tax increases dampened growth in the second half of both the last two years. In H1 2024 and H1 2025, growth averaged 0.7% and 0.4% respectively, before slowing sharply to 0.3% and 0.1% in H2.
“Secondly, whoever replaces Sir Keir is likely to want to spend more. The front runners are currently Angela Rayner and Andy Burnham, both of whom have indicated that they would favour a more interventionist approach to the economy, and would like to see government spending rise further. This has raised red flags among gilt investors and is one reason gilt yields – the cost of government borrowing – have risen above 5% for the first time since 2008.
Even if Starmer stays on as PM, Pugh adds, the government will face greater pressure to support households and businesses with energy bills – that would add to spending levels, pushing up bond yields.
Updated
The yield on 10-year UK government bonds – seen as the benchmark for borrowing costs – is rising too.
10-year bond yields are up 12 basis points (0.12 of a percentage point) at 5.09%, its highest level since late March (when they were the highest since July 2023).
That reflects concerns that the Iran war could push up UK inflation, putting pressure on the British economy.
The best-case outcome from this week’s local elections for UK assets would be a relatively contained Labour defeat, which allows PM Starmer to stumble on for a short while longer.
So argues Michael Brown of brokerage Pepperstone, who wrote this morning:
Though such a scenario may lead to a relief rally in the GBP [the pound] and in Gilts, any such move is likely to prove relatively short-lived, considering that the present political inertia will likely continue. In fact, for markets, under this scenario, the question would likely rather quickly become one of when sticking with Starmer, and a Government that is struggling to govern, is a worse outcome than changing leader?
That said, markets in the here and now are likely to react adversely to the prospect of a Labour leadership challenge, and the ousting of PM Starmer, for a couple of reasons.
Firstly, as we all know, markets hate any sort of uncertainty, especially in the political realm, and particularly with the UK having endured more than its fair share of Westminster upheaval in recent years, having already had six different Prime Ministers in the last decade. Clearly, an uncertain political backdrop not only makes it considerably harder for market participants to accurately discount the future policy path, but is also likely to lead to corporates delaying hiring and investment decisions, in turn posing a headwind to economic growth at large.
Secondly, while a leadership challenge would be a drawn out and uncertain process, it’s overwhelmingly likely that such a challenge would ultimately result in whoever the new leader is replacing Chancellor Reeves with their own choice. Although market participants have, generally, taken something of a dim view of Reeves’s endless ‘tax and spend’ policies, the prevailing opinion remains that Reeves is the ‘least bad’ option among Labour MPs, accounting for her adherence to strict fiscal rules. Any replacement for Reeves is not only likely to tear up those rules, but also to embark on a much looser fiscal stance, considerably increasing government spending, public borrowing, and running an even-larger budget deficit. Any tax hikes announced to fund those measures would at this stage be counter-productive, with the tax burden already on its way to a record high.
Combined, then, UK assets would have to deal with a rather grim combination of near-term political uncertainty, coupled with relative certainty of a further fiscal deterioration over the medium-term. This, quite clearly, poses substantial downside risks to the GBP, as well as to long-end Gilts, which are already on very fragile ground indeed.
UK 30-year borrowing costs hit highest since 1998 amid oil surge and political instability
Newsflash: Britain’s long-term borrowing costs have hit their highest level since 1998, as the Iran war drive up energy costs and speculation swirls over prime minister Keir Starmer’s future.
The yield, or interest rate, on 30-year UK bonds has risen to 5.76%, above the 27-year high set last September when worries about the UK’s finances was hurting the country’s bonds.
Bond yields rise when prices fall.
Today’s bond sell-off comes after a jump in the oil price yesterday, as tensions rose in the Middle East as Donald Trump sent warships to break Iran’s strait of Hormuz blockade.
The failure to reopen the strait of Hormuz has driven oil prices to their highest levels in years, pushing up inflation and threatening growth – which could push up government borrowing.
There may also be concerns in the City that the government’s commitment to its fiscal rules could weaken if Starmer were forced out of office after this week’s local elections.
On Friday, the Guardian reported that allies of Greater Manchester mayor Andy Burnham say he has a credible plan to return to Westminster “within weeks”.
Analysts at ING warned last week that UK bond yields could rise further on a deeper political crisis, telling clients:
Britain’s local elections come at a particularly sensitive moment for UK financial markets. Government bond – gilt – yields have just risen above 5% for the first time since 2008, a time when the economy was growing significantly faster than it is today.
Much of the latest spike is down to inflation, but the politics can’t be ignored. Prime Minister Keir Starmer is in a fight for political survival and a bad election night on 7 May could prove fatal.
Updated
Shares in Budweiser producer Anheuser-Busch InBev have shares jumped almost 8% after it reported a surprise rise in sales, and said it hoped to profit from this month’s men’s football world cup.
Anheuser-Busch InBev, which also makes Corona and Stella Artois, defied expectations of a small drop in sales this morning, by reporting a 0.8% rise in sales by volume in the January-March quarter.
The companby also said it was “well positioned” to capitalise on events such as this summer’s Fifa World Cup.
CK Hutchison sells its stake in UK mobile operator to Vodafone in £4.3bn deal
More than 25 years after securing a slice of Britain’s mobile spectrum through its landmark 3G auction, Hong Kong conglomerate CK Hutchison is bowing out of the sector.
Vodafone is to take full control of the UK’s biggest mobile operator in a £4.3bn buyout deal with CK Hutchison, which has agreed to sell its 49% stake in VodafoneThree – a network with more than 27 million subscribers – to its partner Vodafone.
CK Hutchison held a controlling stake in Three before it announced a merger with Vodafone’s British telecoms network in 2023.
Three can trace its existence back to the UK’s surprisingly lucrative auction of 3G spectrum in 2000, when the UK’s existing mobile operators and a large handful of other telecoms operators battled for the right to offer new, faster mobile phone services to UK consumers.
Hutchison Whampoa, as it then was, secured the licence set aside for a new entrants for a cost of £4.385bn, and went on to launch its Three mobile service.
The entire auction, of five licences, raised over £22bn, astonishing the Treasury who had only expected to raise £5bn.
[there’s a great history of the 3G auction, here. It really was quite dramatic!].
Today Canning Fok, deputy chairman of CK Hutchison, says:
“Our Group was one of the first in the world to invest in 3G mobile telecommunications with the establishment of 3UK in 2000 and introduce ground-breaking mobile broadband telephony to consumers.
The company has grown from a start-up mobile operator, and through merging and forming the present VodafoneThree, has become the number one operator in the UK by subscriber numbers and a market leader in the delivery of telecommunications products and services to UK consumers.
The present transaction now allows us to realise the value of our investment in VodafoneThree for the benefit of the Group and our shareholders.”
UK car sales jump: what the experts say
Here’s some reaction to the 24% rise in UK car sales in April:
James Hosking, managing director of AA Cars:
“April’s figures suggest the new car market has maintained momentum beyond the March plate-change boost, which is an encouraging sign for the industry.
“While March typically does the heavy lifting, sustained demand into April points to underlying resilience among buyers, even as economic pressures remain.
“However, the market is still operating against a complex backdrop. Persistently high fuel prices, driven in part by ongoing tensions in the Middle East, are continuing to influence consumer decisions.
“That’s helping to accelerate interest in electric vehicles, as drivers look for more certainty over running costs. For many, the appeal of EVs is no longer just environmental, but increasingly financial.
Colin Walker, head of transport at the Energy & Climate Intelligence Unit (ECIU):
“With prices at the pump rising as a result of war in the Middle East, it’s no surprise to see EV sales jumping 59% in April. Drivers are voting with their feet seeking to shield themselves from these sudden jumps in the oil price, and save hundreds - even thousands - of pounds a year in running costs. Just recently Autotrader pointed out that EV sticker prices are now cheaper on average than petrol cars.
“With more than a quarter of new cars sold now EVs this reduces the UK’s demand for oil boosting energy security, with electric cars increasingly powered by electricity generated in British wind and solar farms. Calls from parts of the car industry to slow down the UK’s switch to EVs risks leaving our car industry in the slow lane, our drivers worse off, and the UK less energy secure. This is another step on the road to achieving net zero emissions.”
Ian Plummer, chief customer officer at Autotrader:
“Despite a backdrop of geopolitical instability, UK car buying positivity continued apace in April with the UK’s new car market seeing a massive year-on-year increase, and an April monthly performance that is the nearest we’ve been to pre-pandemic highs. While this year-on-year growth is in part driven by comparison with last years’ changes to VED rates and Expensive Car Supplement, with new car enquiries surging by 43% on Autotrader, it looks increasingly as if the higher levels of competition from new brands entering the market, a continued surge of exciting new launches - as well as enhanced consumer offers - are driving car buyers back into showrooms in ever bigger numbers.
As well as a strong month for electric sales, April also marked two consecutive months of average new EV pricing sitting below petrol, ending the month with a £455 price gap – up from £296 in March.”
Mortgage affordability 'at tightest level since 2008'
UK mortgage affordability has reached its tightest level since 2008, a new report shows, even before the surge in borrowing costs since the Iran war began.
Industry group UK Finance reports that in 2025, the average homebuyer spent 21.3%% of their gross income on mortgage repayments, the highest level seen since 2008.
However, there are “very marked regional disparities” within the UK.
UK Finance says
In general, there is a delineation between relatively affordable housing in the north of England and the other UK nations, compared with the south of England where affordability pressures are, overall, much more acute.
The report shows that borrowers in North Norfolk in East Anglia, and in the London Borough of Hillingdon, both spent over a quarter of their gross income on mortgage repayments.
The remaining eight of the top 10 least affordable places were in the London commuter belt, in places like Luton, Slough and Spelthorne.
At the other end of the scale, seven of the 10 most affordable local authorities were in Scotland.
Updated
The UK is on track to miss its targets for electric car take-up, the SMMT fears.
The SMMT estimates that BEVs will make up 32% of the market in 2027, “leaving a persistent gap of around six percentage points against the mandate target”.
It says today:
Year to date, BEVs comprise 23.1% of the overall new car market, significantly short of the 33% required by the Zero Emission Vehicle Mandate, despite billions in manufacturer discounts and the introduction of the Electric Car Grant last year.
Chart: UK car sales by fuel type in April
UK car sales jump as two millionth EV registered
Newsflash: UK car sales jumped in April, driven by stronger demand for electric cars.
The UK new car market grew by 24.0% year-on-year in April, with 149,247 new cars registered in the month, according to the Society of Motor Manufacturers and Traders (SMMT).
That’s the best April for car sales since 2019, and follows a notably weak April in 2025, when new vehicle tax increases came in.
The SMMT also report that the UK’s two millionth battery electric car was registered in April, which they call a “market milestone”.
Battery electric car registrations were up 59% year-on-year in April, while plug-in hybrid registrations rose 46.4% and hybrid electric vehicles registrations were up 18.8%.
Sales of petrol cars rose 8%, while diesel car sales dropped 1%.
The SMMT has revised up its forecast for total new car registrations this year to 2.093m. up from January’s forecast of 2.048m.
However, it has cut its forecast for battery-powered cars’ share of the market to 26.8%, from 28.5%, “following an underperforming first quarter”.
The industry group is worried that concerns over inflation, higher energy prices and the resultant negative impact on the cost of living could hit demand for electric cars, even though the jump in energy costs since the Iran war began is boostering interest in EVs.
Mike Hawes, SMMT chief executive, says:
April’s rebound is welcome, but underlines just how significantly fiscal changes can influence the market. Two million electric car registrations is a considerable milestone to celebrate, although natural demand is still well below the level demanded by the mandate.
The mounting cost of compliance threatens to limit consumer choice, overall decarbonisation and the sector’s competitiveness so the need for a rapid review of the transition to align policy with market realities is unchanged, else Britain’s attractiveness as a vehicle market and manufacturing hub will be put at risk.
Updated
Full story: HSBC profits fall amid $400m fraud-related charge and Iran war
HSBC has taken a $1.3bn (£961m) hit to profits, fuelled by the fallout from the US-Israel war on Iran and fraud in the troubled private credit sector.
The London-headquartered bank said profits fell 4% in the first three months of the year, dropping $100m to $9.4bn, compared with the same period in 2025. Revenue increased 6% to $18.6bn.
The profit decline was linked to a jump in the potential losses it could see on soured loans to $1.3bn, which included $300m specifically linked to the impact of the conflict in the Middle East.
HSBC also reported a $400m “fraud-related, secondary, securitisation exposure” in the UK, related to its investment banking division. The bank’s chief financial officer, Pam Kaur, explained that the charge involved loans that HSBC had made to an unnamed private equity group, which was then exposed to private credit-related loans.
The case reportedly relates to the home loan lender Mortgage Financial Solutions (MFS), according to the Financial Times, which cited people familiar with the matter. HSBC refused to confirm the name of the firm involved in the suspected fraud.
More here:
Philippines inflation hits three-year high as Iran war drive up costs
Over in the Philippines, inflation has soared to a three-year high as the cost of food and energy is driven up by the Iran war.
Philippines inflation jumped to 7.2% in April, up from 4.1% in March, the Philippine Statistics Authority reports, the highest rate since March 2023.
Food and non-alcoholic beverage inflation more than doubled to 6.5%, up from 3.1% n March.
Transport inflation jumped to 22.1% in April, up from 9.6%, while the index for housing, water, electricity, gas and other fuels rose to 7.8% from 4.3% in March.
Analysts have suggested the Philippine central bank may need to implement more aggressive interest-rate hikes to cool this inflationary surge.
Those credit losses have “overshadowed” HSBC’s results in the last quarter, reports Will Howlett, financials analyst at Quilter Cheviot:
HSBC’s quarter was dominated by a sharp and unexpected jump in credit losses, which took the shine off otherwise solid trading and pushed profits just below expectations. A $400m fraud-related loss in the UK drove a marked rise in bad loan charges and has put fresh focus on the risks sitting within more complex lending, even as the rest of the loan book remains stable.
Profits were broadly flat on last year, as higher income was absorbed by rising costs and credit charges. Revenues grew 4%, slightly ahead of expectations, helped mainly by fees rather than interest income. Wealth management continued to perform well, though growth has slowed from last year’s pace.
The credit charge was the clear surprise. Total loan losses rose to $1.3bn, driven by the UK fraud case alongside more cautious assumptions linked to the Iran conflict and a weaker global outlook. There were no meaningful signs of stress in Hong Kong or mainland China commercial property, which will be a relief to investors. While the UK loss has raised questions about private credit and structured lending, it appears to be a one-off rather than evidence of broader problems.
Here’s Chris Beauchamp, chief market analyst at investing and trading platform IG, on HSBC’s earnings:
“HSBC’s results always bring more of an international flavour than its UK peers. Unfortunately that means the Hormuz crisis looms large in the results, casting a shadow over an otherwise solid set of numbers.
The theme is grimly familiar to investors; were it not for the crisis, earnings outlooks would be much rosier. The warnings around the economic impact will only continue to grow the longer the situation remains unresolved.”
There’s a mood of post-bank holiday glumness in the City this morning.
The FTSE 100 share index has dropped by 103 points, or 1%, to 10,260 points, with financial stocks leading the fallers.
HSBC (now -5.4%) are still the top faller, followed by Standard Chartered (-3.1%) and Lloyds Banking Group (-2.9%).
Precious metals producer Fresnillo (-2.8%) also made a poor start to the week, following a drop in the gold price yesterday.
The oil price has dipped slightly this morning, after a jump on Monday.
Brent crude is down almost 1% at $113.41 a barrel, a day after jumping by 5.8% after the US launched an operation to reopen the strait of Hormuz.
UK borrowing costs jump in early trading
UK government borrowing costs are rising this morning, amid concern that the Middle East conflict is intensifying.
The yield, or interest rate, on both short-dated and long-dated UK debt has jumped at the start of trading this morning, as investors return to their desks after Monday’s bank holiday.
The yield on 30-year UK bonds has jumped by 8 basis points (0.08 of a percentage point) to 5.73bps. That takes it close to the seven-month high hit last week, which was almost a 28-year high.
The yield on benchmark 10-year UK gilts is up 8bps too, to 5.05%, while two-year gilt yields are up 10bps to 4.51%.
Yields rise when prices fall, and London is catching up with a global bond sell-off yesterday when the oil price jumped after the US and Iran launched new attacks in the Gulf on Monday.
As Jim Reid of Deutsche Bank told clients this morning:
Earlier yesterday, Iran’s military had warned that the strait remains closed, with reports of a couple of ships coming under attack. Oil prices spiked after Iranian media reported that its missiles had struck a US naval ship, but this move reversed after denials by the US and follow-up Iranian reporting of a “warning shot”.
Updated
HSBC shares drop
Ouch. Shares in HSBC have dropped by over 5% at the start of trading in London.
HSBC (-5.2%) are the biggest faller on the FTSE 100 share index, after the bank reported a drop in profits this morning and that $400m fraud-related loss in the UK.
Updated
On the upside, HSBC is expecting to benefit from higher interest rates this year.
The bank has lifted its forecast for Net Interest Income (NII) – which is the difference between the revenue it gets from interest-bearing assets (such as loans, investments) and the expenses paid on liabilities (such as customers’ saving deposits, and its own debt).
HSBC expects banking NII of around $46bn in 2026, “reflecting an improved interest rate outlook.
It had previously forecast NII of “at least $45bn” for this year.
HSBC has lifted its forecast for expected credit losses this year, following that UK fraud-related $400m charge, and the Iran war.
The bank now expects an ECL [expected credit loss] charge as a percentage of average gross loans to be around 45bps this year, which it says reflects “ongoing uncertainty in the outlook”.
That’s up from its previous ECL guidance for 2026 was around 40bps of average gross loans.
FT: Rachel Reeves rowed with Scott Bessent over Iran war criticism
The Financial Times have a corking story this morning – UK chancellor Rachel Reeves had a “fierce row” with US Treasury secretary Scott Bessent in Washington last month, they say.
The pair of finance ministers clashed over the Iran war on the sidelines of the IMF’s Spring Meeting, after Reeves said she was “not convinced” that “we are safer today than we were a few weeks ago”.
That criticism led Bessent to “berate” Reeves, insisting the world was safer because of the US-Israeli war against Iran, even invoking the spectre of Tehran launching a nuclear attack on London.
As the FT reports, Reeves hit back:
Reeves responded angrily by telling Bessent she did not work for him and disliked how he had spoken to her.
She also reiterated her argument about the Iran conflict lacking clear goals and not necessarily making the world safer.
Here’s the full story: Rachel Reeves rowed with Scott Bessent over Iran war criticism
Reeves was notably critical of the Iran war as she headed to the IMF gathering, telling the Daily Mirror:
“This is a war that we did not start. It was a war that we did not want. I feel very frustrated and angry that the US went into this war without a clear exit plan, without a clear idea of what they were trying to achieve. And as a result the strait of Hormuz is now blocked.”
Introduction: HSBC profits hit by fraud-related credit loss in UK
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The bank reporting season rolls on, with HSBC revealing a drop in profits in the last quarter – partly due to a fraud-related charge in the UK.
HSBC reported it had suffered a $400m “ fraud-related, secondary, securitisation exposure” in the UK, in its Corporate and Institutional Banking (‘CIB‘) business.
This $400m charge is understood to involve loans made to a private equity firm, which was then exposed to private credit-related loans – at a time when concern about the opaque private credit industry is growing.
The $400m charge pushed up HSBC’s estimated credit loss for the first quarter of this year, to $1.3bn.
HSBC also set aside $300m to reflect “heightened uncertainty” and a deterioration in the economic outlook due to the conflict in the Middle East.
Overall, pre-tax profits fell by $100m, compared with the first quarter of 2025, to $9.4bn in January-March this year.
HSBC says:
The decrease reflected higher expected credit losses and other credit impairment charges (‘ECL‘) in 1Q26, an adverse impact from notable items and a rise in operating expenses.
The bank is sticking with its financial targets, arguing it is well-positioned to handle the “changes and uncertainties” in the global environment.
It tells shareholders:
The macroeconomic outlook is facing heightened uncertainty, creating volatility in both economic forecasts and financial markets resulting in both tailwinds and headwinds.
The Group is well-positioned to manage the impacts of these challenges through our high-quality revenue streams, conservative approach to credit risk and strong deposit franchise. Supporting our clients through this volatile period is a top priority.
The agenda
9am BST: UK car sales for April
1.30pm BST: US trade report for March
3pm BST: US service sector PMI
3pm BST: US JOLTS jobs openings reports
Updated
