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2024-11-01 08:24:41 Sina Finance
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UK market losses deepen
British bonds, stocks and the pound suffered heavy losses as investors sold British assets in response to plans by the new Labor government to increase borrowing and push up inflation. The sell-off has pushed short-term borrowing costs to their highest level since May, amid expectations the Bank of England will scale back interest rate cuts. Changes in interest rate pricing affected all asset classes in the UK, with the FTSE 250 recording its biggest fall since early August and sterling depreciating against all major currencies. UK market decline intensifies!
Although the market decline is not as severe as the impact of Liz Truss’ tax cut plan two years ago, it highlights the need for Chancellor of the Exchequer Rachel Reeves to act cautiously to gain support from the market. Labor has claimed a return to financial prudence, but now bond markets appear intent on punishing it for fiscal policy it sees as too loose. Evelyne Gomez-Liechti, a strategist at Mizuho International, said that there is currently an inflation panic, and investors are worried about the possible inflationary impact of the budget and its impact on the Bank of England’s interest rate cut.
On Thursday, the 2-year British government bond yield rose as much as 21 basis points and closed up 12 basis points at 4.44%; the 10-year government bond yield rose as much as 18 basis points to 4.53%, the highest level in the past year. Swap pricing shows the market is pricing in four rate cuts of 25 basis points each by the end of 2025, compared with expectations for five cuts on Friday.
The sell-off also spread to other assets, with sterling falling to its lowest level since August and British homebuilders leading shares lower. Other yield-sensitive sectors such as real estate investment trusts, retail and utilities were also dragged down. A basket of stocks compiled by Goldman Sachs Group Inc. with higher exposure to U.K. sales fell 2.6%, the biggest drop in nearly three months.
Reeves sought to reassure financial markets, saying the Labor government’s main commitment was economic and fiscal stability and stressing that public finances were now on a stable and solid track.
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