The value of the pound has sunk – as the cost of 30-year government borrowing reached a high last seen in 1998.
The so-called spot rate saw one pound buy $1.336 on Tuesday, a low last seen in early August, and down from $1.353 earlier in the day.
Despite the dip, it’s still higher than the vast majority of the past year: in early September 2024, a pound bought $1.31.
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The decline, however, means sterling is on course for the biggest one-day drop since April, when Donald Trump’s announcement of country-specific tariffs spooked markets.
The drop was similarly steep against the euro, with a pound momentarily buying €1.1486, a low not seen since November 2023, nearly two years ago. It’s also a fall from €1.1586 earlier in the trading session.
Before the so-called liberation day announcement, £1 equalled nearly €1.19.
It comes as the yield – the interest rate demanded by investors – on 30-year government bonds – loans taken by the state – hit 5.72%, the highest rate this century.
Why?
Yields are rising across the globe in the face of weak economic growth and the US trade war.
Investors are also concerned about UK government finances as Chancellor Rachel Reeves battles to stick to her fiscal rules to bring down debt and balance the budget.
High inflation and increased public debt from the pandemic have left a deficit between state spending and income.
There have been high-profile government U-turns on winter fuel payments and welfare spending cuts that have meant the chancellor has to look elsewhere to meet her self-imposed fiscal rules.
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More expensive interest payments from rising bond yields have meant the country is stuck in a cycle of rising debt.
Today’s rises to the cost of government borrowing could not have come at…
