UK bond yields saw a sharp increase following the Labour Party's announcement of a comprehensive tax hike and borrowing plan. The yield on two-year UK government bonds rose by 18 basis points, surpassing 4.5% for the first time since Labour took office in early July. Similarly, the 10-year bond yield climbed 15 basis points to reach 4.497%.
This yield spike occurred shortly after UK Finance Minister Rachel Reeves presented the budget, which includes a £40 billion ($52 billion) tax increase plan and a commitment to significantly raise borrowing in the coming years. It's important to note that yield movements are inversely related to price movements.
Analysts from ING remarked that the key point of interest is the anticipated rise in borrowing over the next few years. They highlighted that the government's actual spending plans far exceed previous expectations from just weeks ago.
The Office for Budget Responsibility's independent forecasts suggest that due to the time needed to implement the new taxes, the UK's annual borrowing will increase by an average of £36 billion over the next five fiscal years.
