FX.co ★ UK 10-Year Gilt Yield Rises Amid Fiscal Strains

The yield on the UK 10-year gilt increased to 4.7%, indicative of rising apprehensions surrounding fiscal policy and political instability. Allies of Labour leader Keir Starmer criticized Greater Manchester Mayor Andy Burnham following his announcement to increase borrowing by £40 billion. Burnham argued that Labour should not be overly reliant on the bond market and suggested cooperation with Corbyn, which drew strong disapproval. The UK’s borrowing costs have escalated more swiftly than Germany or the US, limiting Chancellor Rachel Reeves' fiscal flexibility. Recent gilt auctions highlighted the pressure, with demand for 5-, 9-, and 30-year bonds dropping to levels not seen in years, as investors questioned Reeves’ ability to align spending plans with fiscal rules. On the economic data front, the S&P Global PMI for September indicated a significant deceleration in private-sector activity, with growth in services slowing and the manufacturing sector experiencing further contraction. The Bank of England maintained interest rates at their current level, adopting a cautious approach. Markets are anticipating the next rate cut not before 2026.