Why isn’t it fair to compare the current market action to Truss’ devastating mini-budget?

Borrowing rates increased after Rachel Reeves‘ BudgetReaching the highest level in a year in the bond market, led to tense comparisons with the mini-budget that ended the former prime minister two years ago in September. Liz Cage‘s political career.

However today’s movement is insignificant in comparison. Not only that, but news has emerged that may explain some of the bond market’s fears.

Yields on 10-year UK bonds It is now at 4.48 per cent, compared to 4.24 per cent just before Ms. Reeves announced her budget; This rate is an increase of just under a quarter point.

UK government bondholders sold some of this, causing bond prices to fall, meaning the amount of interest they yield increased.

Hal Cook, senior investment analyst at stock broker Hargreaves Lansdown, said the shift was less dramatic than that which followed Ms Truss’s mini-Budget disaster.

“In a very big move, the 10-year gold yield rose from around 3.3 per cent a few days before the mini-Budget to around 4.5 per cent a few days after.”

He recently said bond yields have been rising since mid-September. “There are several reasons for this and the upcoming Budget is one of them. The uncertainty surrounding this particular Budget had unsettled bond investors, particularly as expectations of higher future borrowing weighed on sentiment towards the attractiveness of UK government debt.

And today it emerged that the Office for Budget Responsibility, the government’s spending watchdog, had made a mistake in calculating how much leeway Ms Reeves would buy herself when she switched to a new measure of the country’s debt.

Ruth Gregory, deputy UK economist at Capital Economics

A footnote first spotted by Bloomberg said the £62bn estimate in March was an “error” and the actual figure was £18bn lower.

Aside from the OBR’s mistake and the modest nature of the increase in the cost of debt, there are numerous other differences between this week’s Budget and Ms Truss’s.

The market went crazy because Ms. Truss planned to use debt to pay for tax cuts and hoped it would lead to a growth spurt; Details of the plan were not disclosed. He also claimed that his plan could be implemented without any government spending cuts, something few economists agreed with.

The International Monetary Fund welcomed Ms Reeves’ budget while openly criticizing Ms Truss’s plans. Both were noted as unusual moves for the UN agency.

He came under increasing pressure to resign in the days after Ms Truss’ Budget. He hoped that falling on the sword of his chancellor, Kwasi Kwarteng, would save him, but he eventually resigned a month later after pressure from MPs.

One week before his resignation, Daily Star The newspaper asked if it could outlast a lettuce. He couldn’t.

Polls at the time showed Labor with a 36-point lead, which would have left the Conservative Party with as few as 22 seats in Parliament.

It also devalued the pound sterling, with sterling only approaching the value of one dollar at one point.

The rapid rise in borrowing rates has disrupted the mortgage market, disrupting home-buying plans for thousands of people and adding billions of dollars to borrowing costs.

The turmoil has caused £425bn to be wiped off pension valuations in 2022, according to a report by the pensions regulator this year. Some pensions invested heavily in government debt have also bet on low returns. They were forced to sell this debt, causing yields to rise even higher. They eventually recovered after help from the Bank of England.

Ruth Gregory, deputy UK economist at Capital Economics, said: “The market implications of Wednesday’s Budget are a far cry from the 2022 mini-Budget part. “While we cannot completely rule out the possibility that rapid increases in gold yields could trigger further self-reinforcing cycles of price declines, we do not think this is the beginning of another ‘Liz Truss’ scenario.”

It was also generally accepted that Ms Reeves’s hand had been somewhat forced by the turmoil inherited from the last government. The Office for Budget Responsibility said the previous government spent an extra £9.5bn earlier in the year and this was “not disclosed to the OBR”.

But high debt costs will be unwelcome news for Ms Reeves. On the UK’s £2.69 trillion debt, a quarter point increase in borrowing costs would mean an extra £6.7 billion a year in interest costs. In practice, debt costs are fixed when bonds are sold, but if higher yields persist, this will cost taxpayers more as more debt is issued.

Ms Reeves also downplayed the impact, saying “markets will move every day” and sought to reassure her commitment to “economic and financial stability”.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), had warned that the “incredibly low spending increases” in the Budget meant taxes would likely have to rise again if Ms Reeves’ growth plan backfired.

But the Chancellor said he would “absolutely not” go back to Channel 4 and say he would not raise taxes again.