UK bond yields rise sharply amid speculation over future of Rachel Reeves
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, was on course for the 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 said that Reeves would remain in her post and had not offered her resignation after a broad rebellion by Labour MPs forced the government to withdraw a planned £5.5bn cut to disability benefits.The yield on 10-year government bonds fell back after No 10 moved quickly to say Reeves was “going nowhere,” although it remained higher than before prime minister’s questions, trading at about 4.6%.
However, investors warned the backtracking, which follows an earlier U-turn on winter-fuel payments for pensioners costing £1.25bn, put Reeves in danger of smashing her self-imposed fiscal rules without sweeping tax rises.“A fiscal crisis now appears to be on the horizon unless tough decisions (such as tax rises) are enacted.Markets will be on high alert over the next months,” said Neil Mehta, a hedge fund manager at RBC BlueBay Asset Management.“Last night’s parliamentary chaos underscores the government’s waning control over public spending.
Reeves’s October budget has already increased 2025-26 public spending by nearly £100bn compared with the previous government’s plans, leading to higher borrowing and worsening inflation,”Reeves has repeatedly promised to stick to her “iron-clad” fiscal rules – which require day-to-day spending to be matched by receipts within five years – despite mounting spending pressures and rising debt interest costs,Having committed against further large tax rises after the autumn budget, the chancellor turned to welfare savings in her spring statement to rebuild the headroom against her primary target to £9,9bn after a deterioration in the outlook for the government finances,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionHowever, the threat of a backbench Labour rebellion and rise of Nigel Farage’s populist Reform UK in the opinion polls has led the government to reverse some of its planned cuts, leading to questions over Reeves’s authority.
Investors warned that Starmer swapping his chancellor and adopting a looser approach to the public finances would probably be poorly received in financial markets, while economists said tax rises at the autumn budget could be required to rebuild confidence.Andrew Wishhart, an analyst at Berenberg, said: “The markets are concerned that if the chancellor goes, such fiscal discipline would follow her out of the door.”Benjamin Caswell, a senior economist at the National Institute of Economic and Social Research, said the relatively limited headroom the chancellor had left against her fiscal rules had created problems as the economic outlook turned.“Once you’ve established the rule the most important thing is to set yourself credibility against it.If you’re having to change course and tinker and make piecemeal ad-hoc adjustments every six months that doesn’t convey credibility,” he said.
“There should be serious consideration of raising one of the big three taxes [VAT, income tax and national insurance] in the autumn budget.”
AI companies start winning the copyright fight
Hello, and welcome to TechScape. If you need me after this newsletter publishes, I will be busy poring over photos from Jeff Bezos and Lauren Sanchez’s wedding, the gaudiest and most star-studded affair to disrupt technology news this year. I found it a tacky and spectacular affair. Everyone who was anyone was there, except for Charlize Theron, who, unprompted, said on Monday: “I think we might be the only people who did not get an invite to the Bezos wedding. But that’s OK, because they suck and we’re cool
China hosts first fully autonomous AI robot football match
They think it’s all over … for human footballers at least.The pitch wasn’t the only artificial element on display at a football match in China on Saturday. Four teams of humanoid robots took on each other in Beijing, in games of three-a-side powered by artificial intelligence.While the modern game has faced accusations of becoming near-robotic in its obsession with tactical perfection, the games in China showed that AI won’t be taking Kylian Mbappé’s job just yet.Footage of the humanoid kickabout showed the robots struggling to kick the ball or stay upright, performing pratfalls that would have earned their flesh-and-blood counterparts a yellow card for diving
Whitehall’s ambition to cut costs using AI is fraught with risk
A Dragons’ Den-style event this week, where tech companies will have 20 minutes to pitch ideas for increasing automation in the British justice system, is one of numerous examples of how the cash-strapped Labour government hopes artificial intelligence and data science can save money and improve public services.Amid warnings from critics that Downing Street has been “drinking the Kool-Aid” on AI, the Department of Health and Social Care this week announced an AI early warning system to detect dangerous maternity services after a series of scandals, and Wes Streeting, the health secretary, said he wants one in eight operations to be conducted by a robot within a decade.AI is being used to prioritise actions on the 25,000 pieces of correspondence the Department for Work and Pensions receives each day and to detect potential fraud and error in benefit claims. Ministers even have access to an AI tool that is supposed to provide a “vibe check” on parliamentary opinion to help them weigh the political risks of policy proposals.Again and again, ministers are turning to technology to tackle acute crises that in the past might have been dealt with by employing more staff or investing more money
Musk vows to unseat lawmakers who support Trump’s sweeping spending bill
Elon Musk has vowed to unseat lawmakers who support Donald Trump’s sweeping budget bill, which he has criticized because it would increase the country’s deficit by $3.3tn.“Every member of Congress who campaigned on reducing government spending and then immediately voted for the biggest debt increase in history should hang their head in shame! And they will lose their primary next year if it is the last thing I do on this Earth,” he wrote on his social media platform, X.A few hours later he added that if the “insane spending bill passes, the America Party will be formed the next day”.With these threats, lobbed at lawmakers over social media, the tech billionaire has launched himself back into a rift with the US president he helped prop up
Gov.uk smartphone app to launch with limited functionality
A government app intended to “cut life admin” will be free to download by millions of UK citizens from Tuesday, but its functions will be limited and the cabinet minister in charge has admitted: “The design is not as we would like it to be.”The gov.uk app will be accessible on smartphones for people aged 16 and over and is intended to be the main mobile hub for many citizen interactions with the government, although not the NHS or HM Revenue and Customs.Peter Kyle, the secretary of state for science and technology, said the version launched this week would only steer users to existing government webpages, with more functionality to be added by the end of the year.A generative artificial intelligence chatbot trained on 700,000 pages of the gov
Microsoft says AI system better than doctors at diagnosing complex health conditions
Microsoft has revealed details of an artificial intelligence system that performs better than human doctors at complex health diagnoses, creating a “path to medical superintelligence”.The company’s AI unit, which is led by the British tech pioneer Mustafa Suleyman, has developed a system that imitates a panel of expert physicians tackling “diagnostically complex and intellectually demanding” cases.Microsoft said that when paired with OpenAI’s advanced o3 AI model, its approach “solved” more than eight of 10 case studies specially chosen for the diagnostic challenge. When those case studies were tried on practising physicians – who had no access to colleagues, textbooks or chatbots – the accuracy rate was two out of 10.Microsoft said it was also a cheaper option than using human doctors because it was more efficient at ordering tests
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