Fluctuations in U.K. asset prices bring to mind the market collapse of 2022.
On Thursday, the British Pound reached its lowest point since late 2023, pressured by a global bond selloff that has escalated the U.K. government’s borrowing costs to their highest levels in over 16 years, reigniting concerns regarding the nation’s financial stability.
Sterling was last recorded at a decline of 0.5% at $1.2305, having previously dropped as much as 1.6% to its lowest level since November 2023. Additionally, the cost of hedging against larger price fluctuations over the next month surged to its highest since the banking crisis in March 2023.
This week, global bond yields have surged due to worries about rising inflation, diminished prospects for interest rate reductions, uncertainty surrounding the foreign and economic policies of U.S. President-elect Donald Trump, and the looming threat of trillions of dollars in additional debt.
The U.K. market has been particularly affected. The yields on benchmark 10-year gilts have increased by a quarter point this week alone, reaching their highest levels since 2008, as confidence in the fiscal outlook of Britain continues to wane. By Thursday afternoon in London, some of the selling pressure had subsided, leaving yields stable for the day at approximately 4.81%.
Finance Minister Rachel Reeves is encountering her first significant challenge, as the turmoil in the bond market may compel her to reduce future expenditures.
Typically, rising gilt yields would bolster the Pound
However, this correlation has currently faltered, reflecting investor apprehension regarding the country’s financial situation.
“This is the bond market beginning to hold the UK government accountable. Presently, they seem intent on resisting market forces, which rarely leads to favorable outcomes,” stated Lloyd Harris, head of fixed income at Premier Miton Investors.
In a statement issued late on Wednesday, the UK finance ministry affirmed its commitment to maintaining “an iron grip” on public finances.
BRITAIN FACING SLOWER GROWTH, PERSISTENT INFLATION
The British pound has emerged as one of the strongest currencies against the dollar over the past few years, primarily due to the Bank of England’s strategy of sustaining higher interest rates for an extended period compared to other major central banks. This approach has incentivized foreign investors to seek returns from UK assets, and pound.
Trump’s proposed trade tariffs and immigration policies pose a risk of exacerbating price pressures in the United States, which could hinder the Federal Reserve’s capacity to implement interest rate cuts. This situation has contributed to a significant appreciation of the dollar against nearly all other currencies.
In the derivatives market, traders anticipate that the Fed will enact one rate cut this year, although they are not fully accounting for the possibility of a second cut. Similarly, the UK market reflects nearly identical expectations for the Bank of England.

The British economy is currently facing challenges such as sluggish growth, ongoing inflation, and a declining labor market, trailing behind the United States, which demonstrates resilience across nearly all sectors.
“We previously had the narrative of the UK outperforming Europe, with a stronger currency, higher interest rates, and overall stability for sterling,” remarked Kit Juckes, chief FX strategist at Societe Generale.
“The current risk is that market participants begin to consider using sterling as a hedge against their long dollar positions,” he added.
The UK economy is stagnating, and the labor market is rapidly deteriorating as employers contend with tax increases outlined in the Reeves’ October budget, which introduced the most significant tax hikes since 1993.
This week, the yield on 30-year gilts has surged to its highest level since 1998, exceeding 5.3%, mirroring the increase in global long-term yields.
The last significant turmoil for UK debt occurred in September 2022, when then-Prime Minister Liz Truss announced budget proposals featuring substantial unfunded tax cuts, which led to a sharp decline in gilts, a plummet in the pound, and necessitated intervention from the Bank of England to stabilize the market.
The current situation is far less severe than that of late 2022, when 10-year gilts experienced a one-percentage-point increase within a week, and the pound reached unprecedented lows against the dollar.
Indeed, PIMCO, one of the largest bond investment firms globally, informed Reuters late Wednesday that it remains optimistic about UK debt, attributing much of the rise in gilt yields to the increase in U.S. Treasury yields rather than indicating more profound domestic issues.
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