UK bond sell-off seizing control of Britain’s budget: deVere CEO
The global bond rout is tearing through Britain’s public finances and the chancellor is losing his grip on the budget before he’s even stood up to deliver it, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations as gilt yields surge back towards a 19 year high.
The comments from Nigel Green come as the yield on 10 year UK government bonds climbs to 5.38%, within a whisker of last week’s peak, with barely five weeks until John Healey presents his budget on 28 October.
He says: “Britain’s budget is being written in the bond market right now.
“Investors worldwide are dumping government debt, and the UK is standing squarely in the firing line. Every tick higher in gilt yields lands on the taxpayer.”
The sell-off is global. The 30 year US Treasury yield has hit 5.444%, its highest since 2004, as inflation fears driven by the energy shock ripple through every major debt market.
Gilts are among the most exposed. The 10 year yield has risen by around 1.3 percentage points since Labour took office in July 2024, and the UK now spends roughly £200bn a year on debt interest.
The deVere CEO comments: “Around £200bn a year goes to lenders before a single nurse, teacher or soldier is paid. It’s a staggering drain on the nation, and it’s getting bigger by the week.
“Each quarter point rise in gilt yields adds about £2.5bn to annual interest costs. The arithmetic is brutal, and it compounds.”
Analysts estimate soaring borrowing costs have already wiped out more than half of the roughly £24bn cushion Rachel Reeves built against the fiscal rules in March. Healey has vowed to meet those rules with a margin for uncertainty, though it’s widely expected to be far smaller.
Timing makes matters worse. The Office for Budget Responsibility builds its forecasts on gilt market expectations taken during a confidential reference window, and the current turbulence could fall squarely inside it.
Nigel Green says: “The chancellor’s walking into a trap. A thin buffer practically invites the bond market to test it.
“Rebuild it properly and he’s staring at painful tax rises or deep spending cuts. There’s no cheap way out.
“Promising a ‘focused’ budget and parking the big spending decisions until next year won’t calm markets for long. Investors want credibility, and they want it now.”
The Bank of England is edging towards tightening as well. Bank Rate stands at 3.75% after a split vote this month, with three policymakers pushing for a hike. Inflation reached 3.1% in August and the Bank expects it to top 4% early next year.
Its chief economist now warns the longer energy prices stay high, the more likely rates will have to rise. Markets put the odds of a November hike at around 67%.
He says: “Britain has the worst possible mix: sticky inflation, sluggish growth and a government with almost no fiscal cushion left. When the central bank and the bond market tighten the screws together, households feel it first.”
Mortgage holders are already exposed, with lenders repricing fixed deals ahead of any rate move, piling pressure on a government pledged to ease the squeeze on living costs.
“Homeowners rolling off cheap fixes are about to discover what a 5% gilt market really costs. For millions of families, trading screens will have more say over their finances this autumn than anything announced in Westminster.”
He concludes: “Investors and savers should be stress testing their finances for higher rates lasting longer, reviewing currency exposure and checking their portfolios aren’t overloaded with assets that suffer most when borrowing costs climb.
“The bond market has fired its warning shot. Healey ignores it at its peril.”