"Nigel Green says: "When debt servicing costs are already this high, investors have very little tolerance for uncertainty. If confidence in fiscal leadership is damaged, gilts sell off quickly and the price of funding the state rises." Markets have a recent reference point. Over the summer, a period of visible political strain triggered abrupt moves in UK assets. Sterling weakened sharply and gilt yields jumped when investors sensed hesitation and lack of unified backing at the top of government. No policy overhaul was required. The perception of instability alone was sufficient to reprice risk."
"Nigel Green says: "The summer showed how fast markets react when authority looks fragile. "Investors saw uncertainty and immediately demanded a higher return for holding UK debt. That episode is fresh in bond managers' minds." The current controversy goes further by challenging the integrity of the fiscal story itself. Ahead of the Budget, repeated warnings were made about tightening headroom and the need for tough decisions."
Nigel Green warns that gilt markets would react aggressively if Chancellor Rachel Reeves misled Parliament about public finances or resigned. The Office for Budget Responsibility told the Treasury in mid-September that the baseline public finances were stronger than widely thought and had forecast higher wages, which Reeves omitted while warning of a productivity downgrade before the Budget. Prime Minister Keir Starmer is expected to back Reeves' budget decisions. Green says investors have little tolerance for uncertainty when debt servicing costs are high, and past political strain caused sterling weakness and rising gilt yields. The episode threatens fiscal credibility and could raise government borrowing costs.
Read at London Business News | Londonlovesbusiness.com
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