Latest budget: Darren Jones says UK has ‘post-traumatic stress disorder’ from Liz Truss, but admits budget is hurting workers

First of all: don’t panic.

Here’s what you need to know. The budget was not liked by the financial markets. Indeed, it has been cut about as much as any other budget in recent years, with the exception of Liz Truss’s mini-budget.

The pound has weakened. Government bond yields (essentially the interest rate the Treasury pays on its debts) have risen. This is exactly the opposite market reaction to what chancellors would have liked to see after they presented their financial reports to the House.

This all began to crystallize shortly after the Budget speech, when yields began to rise and the pound began to weaken as investors and economists got their hands on the Budget documents. However, today the fall of the pound and the rise in bond yields have accelerated.

To be absolutely clear, this is not the reaction any chancellor wants to see after passing a budget – let alone his first budget in office. Indeed, I can’t think of any budget over the years that has generated as much hostile market reaction as this one, except for one.

That exception, of course, is the Liz Truss/Kwasi Kwarteng 2022 mini-budget. And here you will find a silver lining for Sir Keir Starmer and Rachel Reeves.

The rise in gold yields and the fall in sterling in recent hours and days is still a far cry from what happened in the lead-up to and after the mini-budget. This does not yet look like a crisis moment for UK markets.

But this is not good news for the government either. It’s actually quite terrible. Because higher borrowing rates on UK debt mean it (and us) will have to pay significantly more to service our debt in the coming years. And that debt is about to rise sharply under plans outlined by the Chancellor this week.

This is where things get especially difficult for Ms. Reeves. In that budget paper, the Office for Budget Responsibility said the Chancellor could afford gold yields to rise by around 1.3 percentage points, but then when they exceeded that level, the so-called “headroom” she had over her budget rules , will evaporate. . In other words, she would be breaking these rules, which, let me remind you, are significantly less strict than the ones she inherited from Jeremy Hunt.

The question arises: where are gold yields now? How close are they to the danger zone where the Chancellor is breaking his rules?

Short answer: alarmingly close. Because right now, the five-year government debt yield (that’s the maturity the OBR is most focused on) is more than halfway into that danger zone – just 56 basis points from the point where debt interest rates are eating away at any leeway it has. chancellor so as not to break her rules.

We are not yet in crisis territory. And at the same time, every movement of currencies and bonds cannot be attributed to this budget. Markets are currently unstable. There’s a lot going on with the US election next week and the Bank of England’s interest rate decision next week.

The chancellor may be lucky. Gold yields may stabilize in the coming days. But right now the UK, with its high levels of public and private debt, with its new government having just promised to borrow many billions more in the coming years, is under the scrutiny of bond vigilantes.

A Halloween nightmare for any chancellor.