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UK borrowing costs climbed on Thursday, hitting a new five-month high, as bond investors continued to digest the additional borrowing chancellor Rachel Reeves set out in the Budget.
The yield on the 10-year gilt rose 0.04 percentage points to 4.39 per cent while the two-year yield edged up 0.04 percentage points to 4.35 per cent.
The moves followed volatile trading on Wednesday, when the bond market reversed an initially positive reaction to Labour’s first Budget in 14 years as the scale of the government’s additional borrowing became clear.
Analysts said the market was responding to an increase of borrowing of £28bn a year over the parliament, after what the Office for Budget Responsibility called “one of the largest fiscal loosenings of any fiscal event in recent decades”.
Figures from the Debt Management Office also showed debt sales were likely to reach £300bn in the current fiscal year, up from the previous estimate of £278bn and slightly above investors’ expectations.
Mohit Kumar, a fixed-income analyst at Jefferies, noted on Thursday that “the immediate concern for the market would be fiscal expansion funded by long-dated issuance”.
The OBR said that the additional borrowing had not been fully expected by investors and was likely to result in higher interest rates over the next few years.
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