Reeves rightly fears the bond market, but she can afford to ditch one unhelpful rule | Phillip Inman
There is a good reason Rachel Reeves is wary of the dreaded bond market vigilantes.Anyone who inherits a mountain of debt and then finds out that many of the lenders act like sharks is right to be concerned.Most of the participants in financial markets are not actively predatory.They swim in a sea of money with only one rule, to stick together, hoovering up as much profit as they can at the lowest risk.Bond vigilantes, on the other hand, are traders with a remit to pursue juicy prey, even if it means going hungry for a while.
They manage funds that want a high interest rate from government lending.Right now, they smell small drops of blood in the water.It’s not just the conflict in the Gulf and the extra costs it brings.It is the political instability that stems from Keir Starmer’s fragile leadership and rival claims of quick fixes and easy answers.The UK has become infamous for succumbing to hysteria, especially after the Brexit vote and the farcical Tory response to Covid, which from an economic perspective, culminated not in Liz Truss’s break for the border moment, otherwise known as the 2022 mini-budget, but Jeremy Hunt’s £40bn national insurance pre-election giveaway in 2023-24.
The bond vigilantes also have the Italian and French finance ministers in their sights, now that they have joined the UK as the worst offenders on debt row.Hence the term Bifs (Britain, Italy, France), which has recently supplanted Piigs (Portugal, Ireland, Italy, Greece and Spain), the derogatory term coined in the European sovereign debt crisis of 2012.What these traders scout to find are countries that cannot control their annual spending.For those that are singled out, borrowing money to bridge the gap between spending and income, which was expensive before the breakout of hostilities in the Gulf, costs even more now.The UK ran a deficit of 5% to 6% after pandemic spending waned.
Initially, this didn’t matter, which can be seen from casting back to check on the borrowing rates for 10-year UK bonds.In early 2022, the yield, or interest rate, on the 10-year bond was about 1%.Two years later it was 4%.Last week, the debt management office, which auctions government bonds for the Treasury, could only find buyers at 4.9%.
There are several reasons for the steep rise, and they cannot all be laid at Truss and Hunt’s door.In early 2022, the Bank of England was a major buyer of UK bonds and that kept the value high and the interest rate low.Later that year, the UK was not only suffering at Truss’s hands, but the war in Ukrainewas pushing inflation above 10%, prompting wide scale and costly bailouts to businesses and households.The annual deficit jumped above 6% in 2024.By this time the central bank was also selling bonds, not buying them.
To fend off the vigilantes, Reeves has vowed to drive the annual deficit below 2% by 2031,In Washington this week, she received praise from Kristalina Georgieva, the boss of the International Monetary Fund (IMF), who said: “We see the UK’s fiscal response as a good example for other countries,” At the IMF’s spring meetings, Georgieva said she was also pleased that Reeves would limit the next round of rescue measures and make them temporary,Leftwing MPs, who have a long list of extra spending commitments they would like the chancellor to adopt, will probably cast Georgieva as fiscally conservative,Yet without an overhaul of the rules governing international bond markets, an open trading economy such as the UK must play ball.
That said, there is one self-imposed fiscal rule that Reeves controls and one she could jettison to support long-term investments,This rule forces her to reduce the debt to GDP ratio in the final year of the five-year economic forecasts produced by the Office for Budget Responsibility,It is one of the barriers to extra defence spending, which if it was announced today could begin to kick in four of five years down the line, just at the point when Reeves has committed to bring down the debt level, as well as the annual deficit,Everyone should care about whether the UK can defend itself when the number of rogue states capable of challenging our independence grows every year,It cannot be logical to maintain a debt rule that only has the effect of delaying vital investment.
Other investment could also get the green light without the fear of breaking a rule that was always going to get in the way of sensible decision-making.
‘I don’t want to waste the gas’: Uber and Lyft drivers reeling as fuel prices soar
Drivers for Uber and Lyft across the US are spending hundreds more dollars on fuel each month after the US-Israel war on Iran triggered a sharp rise in oil prices.Support offered by the ride-hailing companies amounts to a “slap in the face”, drivers operating their services told the Guardian, as many are forced to choose between driving more to make the same money as previously – or cutting back their miles to reduce costs.The companies have both expanded rewards and discounts through financial services products in recent weeks, as average US fuel prices surged from $2.98 a gallon at the end of February to above $4.But gig workers at Uber and Lyft say such support is not enough, and “pretty hollow” compared to any increase in pay for drivers
Vodafone incentivised security staff to fine its own franchisees
Vodafone incentivised its security staff to increase “clawbacks” levied on its own franchisees, as part of a programme that led to the telecoms group fining its own shopkeepers millions of pounds for seemingly small administrative errors.The policy – which included one alleged case of a £10,000 penalty for a franchisee whose mistake cost Vodafone £7.08 – involved setting “key performance indicators” (KPIs) for the telecoms group’s internal employees to collect total annual fines of £1.5m from the small business people running the FTSE 100 company’s high street stores.The existence of the fines regime has proved controversial for years and forms part of a high court claim brought by 62 former Vodafone franchisees in 2024, who allege the mobile phone company “unjustly enriched” itself by up to £85m by using tactics MPs have compared to the Post Office Horizon IT scandal
UK’s OnlyFans tops $3bn valuation amid talks to sell stake to US investor
OnlyFans, the UK adult video platform, is in talks to sell a minority stake to a US investor that will value the business at more than $3bn (£2.2bn).The London-based company is in advanced talks to sell a stake of less than 20% to the San Francisco-based investment firm Architect Capital, according to the Financial Times. Sources familiar with the process confirmed the talks to the Guardian.OnlyFans has decided that offloading a minority stake is the best guarantee of stability for a business dealing with the death of its owner, Leonid Radvinsky
Finance leaders warn over Mythos as UK banks prepare to use powerful Anthropic AI tool
British banks will be given access in the next week to a powerful AI tool that was deemed too dangerous to be released to the public, as a series of senior finance figures warned over its impact.Anthropic, which has so far limited the release of the new model to a small clutch of primarily US businesses, including Amazon, Apple and Microsoft, said it would expand that to UK financial institutions.“That is in the very near term, in the next week,” Pip White, Anthropic’s head of UK, Ireland and northern Europe operations, said in a Bloomberg TV interview. “As you would expect, the engagement I have had from UK CEOs in the last week has been significant.”Anthropic, which is the company behind the Claude family of AI tools, has said that its latest model, Mythos, poses an unprecedented risk because of its ability to expose flaws in IT systems
The Crucible holds tribute to former player and commentator John Virgo
A minute’s applause was paid in tribute to John Virgo, who died in February aged 79, as the World Snooker Championship got under way at the Crucible in Sheffield.Virgo, who won the UK Championship in 1979, enjoyed a successful playing career but was best known for his broadcasting. During his 18 years as a professional, he reached the World Championship semi-finals in 1979. He went on to work for the BBC in 1994 and his voice became a distinctive feature of the national broadcaster’s snooker coverage for three decades.This article includes content hosted on embed
‘That’s a guppy’: Baumgardner swats aside Britain’s Dubois as feud escalates
A dismissive Alycia Baumgardner said Britain’s Caroline Dubois still has more to prove before the American will entertain a fight between the two unified champions.That was the curt assessment from Baumgardner early Saturday morning after she retained her WBA, WBO and IBF junior lightweight world titles with a controlled, at times punishing display across 10 three-minute rounds against Bo Mi Re Shin in a main event that started well past midnight at Madison Square Garden.“Like I said, I’m a piranha,” said Baumgardner, a world champion at 130lb since 2021. “That’s a guppy. Get her out of here
Two more Reform local election candidates accused of offensive posts
Mandelson scandal is biggest crisis for diplomatic service in decades, says ex-Foreign Office chief
‘Pure shock’: how ministers reacted to revelation of Mandelson vetting failure
Green MP: Labour caricatures working-class people over greyhound racing
‘It’s a twilight zone’: Iran war casts deep shadows over IMF gathering in Washington
Keir Starmer faces ‘judgment day’ as Mandelson vetting debacle grows