UK's Reeves Under Pressure After Financial Markets Rout

• Rachel Reeves is facing her first major test since becoming Britain's finance minister after a jump in the government's borrowing costs this week and a deepening of the pound's losses on Thursday, potentially forcing her to cut future spending.
• With investors worrying about high borrowing and a stagnating economy, the Treasury said there was no need for intervention to calm markets, having vowed late on Wednesday to maintain "an iron grip" on the public finances.
• Britain's new government launched its plan for more investment in public services and infrastructure to boost economic growth just days before Trump's November 5 election victory, pushing up borrowing costs globally. That shift in markets has made investors more worried about the combination of high borrowing in Britain planned by Reeves and Prime Minister Keir Starmer, and the impact of their higher taxes for business on an economy that is now stagnating.
• Analysts at Citi said British bonds were being hit by worries about the extent of the government's borrowing plans, which could keep pressure on inflation and prevent the BoE from cutting interest rates quickly to help the economy. Britain is due to issue nearly 300Bn pounds ($368Bn) of government bonds over the coming financial year.
• Some analysts said Britain's departure from the European Union had made it more exposed to swings in financial markets. "Brexit UK is vulnerable as a less core asset in global investor portfolios," Krishna Guha and Marco Casiraghi at Evercore ISI, a consultancy, said in a report. Others said the rise in market interest rates would make it easier for the BoE to cut borrowing costs, potentially easing the pressure on gilt yields and the government's coffers.

(Source: Reuters)