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Government borrowing costs have hit their highest level since before the election amid new evidence that Labor’s budget plans are causing jitters for UK asset investors.
Ten-year bond yields, which rise as their prices fall, rose to about 4.25 percent from about 3.75 percent just over three weeks ago.
Yesterday’s 4.247 per cent was the highest level since July 3, the day before Labor came to power.
The latest rise came as UK asset manager Liontrust said investors had withdrawn £1.1bn from its funds amid fears over tax rises by Rachel Reeves.
The Chancellor has warned that taxes will have to rise to fill a £22bn hole in the public finances.
Concerns: Government borrowing costs have reached their highest level since before the election
That could include an increase in capital gains tax, a move that companies fear will deter investment, as well as raids on other areas, including pensions.
And reports suggest it could also change tax rules to unlock tens of billions to spend on infrastructure.
But some experts have suggested that the Government may not find it easy to raise the money it needs by selling UK bonds, known as gilts. This has raised the possibility of a “buyer strike” among gold investors.
Gilt yields represent the returns expected by those investors for the risk of lending money to the Government.
Neil Wilson, chief market analyst at Finalto, said the move came “as it becomes clear that Chancellor Rachel Reeves will change debt rules to take on more debt.”
And he added: ‘Be careful with the gilts. Reeves may not have it so easy.
Pantheon Macroeconomics experts pointed to other factors that are driving up bond yields, including rising oil prices caused by the conflict in the Middle East, adding to inflationary pressures.
Another factor is the better-than-expected performance of the US economy.
Both are reducing the likelihood of rapid interest rate cuts.
Pantheon said the prospect that the government will need to sell more bonds than expected to raise money “has probably added to the rise in bond yields, but only modestly.”
Liontrust’s warning came as the asset manager reported a 4 per cent drop in assets under management to £26bn for the three months to the end of September.
Liontrust’s outflows of £1.1bn during the period were down from the £1.6bn suffered in the same period the previous year.
But the election of a government with a large majority “raised expectations for political and economic stability and a strong pro-growth agenda,” said the company’s chief executive, John Ions.
He added: “However, speculation and uncertainty around changes to taxes and reliefs have affected investor confidence and fund flows for the entire industry.”
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