Sterling continued to fall on Thursday as the UK government’s borrowing costs rose.
The move comes as the UK’s 10-year borrowing costs have risen to the highest level since the 2008 financial crisis, and bank borrowing has all but come to a standstill.
Economists have warned that rising costs could lead to further tax increases and cuts to spending plans as the government seeks to meet self-imposed borrowing targets.
“Compliance with fiscal rules is non-negotiable and there is no doubt in anyone’s mind that the government will have a steely grip on public finances,” a Treasury spokesperson said, according to multiple media reports.
The prime minister added: “We are leaving no stone unturned in our determination to deliver economic growth and fight for workers.”
The BBC has contacted the Treasury for comment.
Earlier, the government said it would not say anything about formal borrowing forecasts by independent forecasters, which are expected to be released in March.
“It’s clear that I’m not going to go ahead…It depends on the OBR (Office for Budget Responsibility)’s predictions.”
The prime minister’s official spokesperson said: “Fiscal stability is a precursor to economic stability and economic growth.”
Shadow Chancellor Mel Stride claimed the Chancellor’s big budget spending and borrowing plans were “making government borrowing more expensive”.
“We should be building a more resilient economy, not raising taxes to compensate for fiscal incompetence,” he said in a post on X.
The warning came after borrowing costs for more than 30 years hit a 27-year high on Tuesday.
Meanwhile, the pound fell 0.9% against the dollar to $1.226.
Sterling typically appreciates when borrowing costs rise, but economists said widespread concerns about the strength of the British economy had caused the pound to fall.
Governments usually spend more than they raise taxes. You borrow money to fill this gap, but you have to pay it back with interest.
One way to borrow money is to sell financial instruments called bonds.
Gabriel McCune, head of macroeconomics at Sad Rabbit Investments, said rising borrowing costs “effectively rob Reeves of fiscal space, derail Labor’s investment commitments and require a painful readjustment of spending plans.” There is a possibility that it will become.”
Globally, there has been a surge in recent months, triggered by investor concerns that US President-elect Donald Trump’s plans to impose new tariffs on goods entering the US from Canada, Mexico and China will push up inflation. Government borrowing costs are rising.
These policy prospects clash with other concerns about rising U.S. debt and sustained inflation, which could also keep borrowing costs high. In the United States, the 10-year Treasury yield also rose sharply on Wednesday, reflecting new price data, but fell to more than 4.7% by midday, still the highest level since April.
As investors react to changes in the US bond market, the effects are being felt around the world, including in the UK.
Danny Hewson, head of financial analysis at AJ Bell, said the UK’s rise was similar to that of the US.
“The US 10-year bond yield has risen to its highest level since April, while UK 10-year borrowing costs have risen to their highest level since the financial crisis,” he said.
He added: “This may be a global decline, but it has created an extraordinary headache for the UK Prime Minister, who is trying to increase spending on public services without raising taxes again or breaking independent finance rules. ” he added.
With less than two weeks until President Donald Trump’s return to the Oval Office, “uncertainty surrounding his tariff plans is already shaking investors’ nerves,” Hewson said.
The Office for Budget Responsibility (OBR), the official forecasting body, has begun the process of updating its forecasts for next month’s government borrowing, which it plans to submit to Parliament in late March.
