Pound falls further as borrowing costs rise again
The pound has fallen to its lowest level against the dollar since November 2023, while government borrowing costs continue to rise.
The pound fell to $1.21 on Monday morning as the recent sell-off continued.
At the same time, the interest rate at which governments borrow money, known as yields, rose again, reaching by one measure the highest level since 2008.
Borrowing costs are rising in many countries around the world, although some say decisions in the budget make the UK particularly vulnerable.
Governments typically borrow money by selling bonds to large investors such as pension funds. UK government bonds are known as gilts.
The yield on 10-year gilts – the rate at which the government repays investors on a loan over 10 years – has risen to 4.89%, the highest level in nearly two decades.
The 30-year Treasury bond interest rate rose to 5.5%, the highest level in 27 years.
The cost of government debt also rose in Germany, France, Spain and Italy as markets opened on Monday morning.
Some experts say investors are reacting to former U.S. president’s re-election Donald Trump and his rhetoric about tariffs.
There are concerns that this will lead to more persistent inflation than previously thought, so interest rates will not fall as quickly as expected, either in the United States or elsewhere.
Strong U.S. jobs data on Friday also increased expectations that U.S. interest rates will remain higher for longer, helping to strengthen the dollar’s value against other currencies.
However, Emma Wall, head of platform investors at Hargreaves Lansdown, said the UK’s problems were not purely caused by global issues and she believed the measures announced in the budget were exacerbating inflation.
“If you can get inflation under control, you’ll see interest rates come down in the UK,” she added.
