Director of the Institute for Fiscal Studies Paul Johnson has confirmed that the bond market selloff risks wiping out Rachel Reeves’s wriggle room - and potentially forcing her to make spending cuts.Speaking to the Guardian, as the yield on 10-year UK debt hit its highest level since 2008, Johnson says:“Broadly speaking what’s happened in bond markets since the budget is roughly speaking enough to wipe out the very small amount of headroom Rachel Reeves left herself.”[this is the headroom to meet the chancellor’s fiscal rules, which include having debt falling as a share of the economy in five year’s time.In last autumn’s budget, it was just £9.9bn].

Johnson cautioned that many assumptions go into the Office for Budget Responsibility’s forecasts, so there could be other factors working in the chancellor’s favour.But all else being equal, the bond market moves potentially point to spending cuts - given the Treasury has reiterated its commitment to the fiscal rules, and Reeves has promised not to make tax increases at her Spring statement, alongside the OBR’s forecast.He explains:“The only thing that can take the strain in any of this is your spending numbers.”That points to trouble ahead, given that spending is already expected to be constrained after 2025-26.Johnson says:“The plans are already very tight, at 1.

3% [increase in spending] a year, which implies at best freezes for most departments.Just take that down below 1.3% and that looks really tough.It’s going to be quite a bloody cabinet battle if that’s where we end up.”A late development – the UK government has insisted, firmly, that it will stick to the chancellor’s fiscal rules, following the further rise in bond yields today that have eaten into what headroom there was.

A HM Treasury spokesperson says:“No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.“UK debt is the second lowest in the G7 and only the OBR’s forecast can accurately predict how much headroom the government has - anything else is pure speculation.“Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change.Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people.”Time to recap….

The UK government is under more pressures to consider spending cuts or fresh tax rises after Britain’s 10-year borrowing costs rose to the highest level since the global financial crisis,In a sign that the bond sell-off was escalating today, the yield on 10-year UK gilts rose to 4,825%, the highest level since the financial crisis more than 16 years ago,The yield on 30-year gilts, which hit a 26-year high on Tuesday, continued to rise too,Susannah Streeter, head of money and markets at Hargreaves Lansdown, said concerns about stagflation were brewing, given inflation is creeping up, pay growth is rising, and the economy is stagnating.

“There are concerns this may limit the interest rate reductions this year.It’s unclear to what extent the UK government’s investment in infrastructure will provide a boost to growth over the longer term.It seems appetite to buy long-term dated UK government debt has fallen amid this uncertainty.”Economists warned that Rachel Reeves’s headroom to keep to her fiscal rules is being wiped out by the rise in borrrowing costs.Although concerns over the strength of the UK economy are one factor hitting bonds, analysts said that the sell-off was also a global phenomenon, with fears over Donald Trump’s plans for import tariffs also moving markets.

Reports that Donald Trump is mulling over the idea to declare a national economic emergency to impose widespread tariffs added to those worries.The pound weakened to its lowest level since last April, losing more than a cent to trade around $1.235.The number of Americans filing new claims for unemployment benefit fell, while fewer new workers than expected were added to company payrolls last week.Here’s a handy explainer of why the bond market is causing a headache for chancellor Rachel Reeves.

Mike Riddell, portfolio manager at Fidelity International, has made some interesting points about the sell-off in UK government bonds.He argues that it’s more of a global story than a UK-only one, although the drop in the pound is a concern….“The gilt selloff of the last few days has inevitably grabbed the headlines, where a common conclusion is to point fingers at the government.But this would miss the point; it is mainly a global fixed income story.UK gilt yields are broadly moving with US Treasuries, where 30-year gilt yields have risen by no more than 30-year US Treasuries over the past couple of months.

And there has been a similar sized move even in long dated German government bonds in the last month.”“That’s not to say that the UK has been immune to pressure.Although there’s not any sign of a UK crisis yet, a worrying development in recent days is that gilt yields have risen a little more than in other markets, at a time when sterling has sharply weakened.Normally currencies are driven by interest rate differentials, where higher gilt yields relative to other countries would be expected to push the pound stronger.The combination of a weaker pound and higher relative gilt yields has eerie echoes of August-September 2022, and if this continues, could potentially be evidence of a buyer’s strike or capital flight.

The broader picture is that investors are demanding a higher risk premia for owning longer dated government bonds – which makes it more expensive for countries to refinance debt when it matures.Riddell adds:If this selloff continues, it’s going to push deficits wider over the long, which then risks a doom loop since deficits need to be funded by ever more sovereign issuance.But it’s also bad news for corporate issuers, or for example anyone who wants a fixed rate mortgage - a jump higher in the risk-free rate is a tightening in financial conditions, which will dent global economic growth.So if sovereign borrowing costs continue to surge higher, then risk assets such could start to come under substantial pressure.“But the positive news it that the potential return from owning government bonds has just got a lot higher too.

If you buy a 30-year UK government bond today and hold to maturity, then assuming no default of course, the total return over the life of the bond is almost 400%,”Donald Trump, rather than Rachel Reeves, is probably to blame for the rise in UK bond yields today, argues Laith Khalaf, head of investment analysis at AJ Bell,Khalaf says:“The bond market has taken fright from the growing sense of inflationary pressures in the air,The benchmark UK 10-year gilt has now risen to levels not seen since the financial crisis,It’s somewhat odd that bond yields have risen to new highs so long after interest rates have peaked, which suggests markets were complacent about inflation and overly confident that the Bank of England would cut rates sharply.

“Rachel Reeves appears to be one potential culprit for rising bond yields, which is probably wide of the mark.Reeves’ maiden Budget was marginally inflationary, and did increase overall government borrowing, but since the beginning of October the US and UK 10-year bond yields have tracked upwards almost hand in hand (see chart below).Those who think the current bout of bond market jitters is down to policies announced in the Budget need to explain why there has been such correlation in the upward march of bond yields both here and in the US.Khalaf adds that there are “no easy answers” to explain why markets move in a particular way, especially over a short time frame:However, the fact yields are rising on both sides of the Atlantic does suggest the new year has brought with it a focus on the incoming US president, and the potential for his trade and immigration policies to be inflationary, which has implications for both economies.Bond investors might also be looking at the giant stacks of government debt already on the books on both sides of the pond and saying thanks, but no thanks.

“The US has the benefit or being the world’s reserve currency, which underpins demand for dollar denominated assets such as US Treasury bonds.Unless, that is, Donald Trump overachieves on his crypto goals and bitcoin becomes the world’s port of call for storing value (unlikely).Here in the UK higher yields put pressure on government finances and increase the risk that Reeves will come back with another tax raising Budget.A big saving grace is that the new chancellor has limited herself to one Budget per year, and so while we will get an updated set of forecasts from the OBR in March, which will lay bare the state of government finances, we don’t expect Reeves will have to balance the books though tax policies until the back end of the year.That gives plenty of time for the bond market to calm down, though that in turn will of course depend on whether global inflation actually rears its head again in 2025.

It’s all change at the top of Lloyd’s, the world’s oldest insurance market, founded in 1688.It announced today that its chief executive John Neal will be leaving the company this year, after leading the company for more than six years.He will join London-based insurer Aon as global CEO of reinsurance and global.chairman of climate solutions, with his leaving date to be confirmed soon.Neal steered Lloyd’s – which is made up of more than 50 insurance firms and over 380 brokers – through Brexit, rising interest rates and inflation, a global pandemic and geopolitical conflict such as Russia’s invasion of Ukraine.

Before he joined Lloyd’s, Neal was forced to take a pay cut as head of Sydney-based QBE, one of the world’s biggest insurers, because he failed to tell the board of his affair with his personal assistant.The Lloyd’s chairman, Bruce Carnegie-Brown, is also leaving after an eight-year tenure, and will be succeeded by Sir Charles Roxburgh on 1 May, a former McKinsey consultant and ex-permanent secretary at the Treasury, who also served as director-general for financial services, where he had dealings with the insurance sector and Lloyd’s.Back in September, Lloyd’s announced an increase in profit before tax to £4.9bn for the first six months of 2024, from £3.9bn a year earlier.

However, the group has repeatedly come under fire for its refusal to force its member syndicates to stop underwriting fossil fuel projects, and insurance firms operating in the market were the world’s biggest underwriters of oil and gas projects, research from the campaign group Insure our Future found last year,At the time, Lloyd’s was also accused of “reparations washing” over its response to an academic review that laid bare its “significant role” in making the transatlantic slave trade possible,Donald Trump is mulling over the idea to declare a national economic emergency to impose widespread tariffs, CNN reports, as the president-elect escalates threats to seize the Panama Canal, acquire Greenland and force Canada into becoming a US state,The emergency powers move would allow Trump to implement broad tariff measures against both allies and adversaries through the International Economic Emergency Powers Act, according to four sources familiar with the discussions,The emergency powers would give Trump significant latitude in constructing a new tariff programme without having to demonstrate traditional national security justifications, the sources told CNN.

“Nothing is off the table,” one source familiar with the matter told the network, confirming that robust discussions about declaring a national emergency have taken place.There’s a rather muted opening to trading on Wall Street, following losses yesterday.The S&P 500 share index has dipped by 5 points, or 0.1%, to 5,903 points, as traders digest the threat of fresh tariffs from the Trump White House.The Dow Jones industrial average has lost 0.

33%, while the tech-focused Nasdaq is down 0.33%.Director of the Institute for Fiscal Studies Paul Johnson has confirmed that the bond market selloff risks wiping out Rachel Reeves’s wriggle room - and potentially forcing her to make spending cuts.Speaking to the Guardian, as the yield on 10-year UK debt hit its highest level since 2008, Johnson says:“Broadly speaking what’s happened in bond markets since the budget is roughly speaking enough to wipe out the very small amount of headroom Rachel Reeves left herself.”[this is the headroom to meet the chancellor’s fiscal rules, which include having debt falling as a share of the economy in five year’s time.

In last autumn’s budget, it was just £9.9bn].Johnson cautioned that many assumptions go into the Office for Budget Responsibility’s forecasts, so there could be other factors working in the chancellor’s favour.But all else being equal, the bond market moves potentially point to spending cuts - given the Treasury has reiterated its commitment to the fiscal rules, and Reeves has promised not to make tax increases at her Spring statement, alongside the OBR’s forecast.He explains:“The only thing that can take the strain in any of this is your spending numbers.

”That points to trouble ahead, given that spending is already expected to be constrained after 2025-26.Johnson says:“The plans are already very tight, at 1.3% [increase in spending] a year, which implies at best freezes for most departments.Just take that down below 1.3% and that looks really tough.

It’s going to be quite a bloody cabinet battle if that’s where we end up.”Back in the UK, the rollout of electric vehicle (EV) public charging devices has slowed.Data from the Department for Transport show there were 73,334 devices installed as of 1st January, up from 53,677 a year earlier.That is an increase of 37% for 2024, compared with a 45% rise in 2023.RAC senior policy officer Rod Dennis says:“It’s positive to see that the availability of EV charge points is improving.

However, it’s also important that their affordability is addressed, especially for anyone without a driveway who can’t charge cheaply at home,There is still a huge gulf in prices between public and home chargers, partly due to the higher rate of VAT at public charge points compared to the 5% domestic rate,Charge point installations and cheaper public charging costs are two sides of the same coin when it comes to ramping up private EV demand,”Last month, the National Audit Office warned that large swathes of the country were missing out in the deployment of these electric vehicle charge points, even though the government was on track to deploy 300,000 by 2030,US firms held onto staff where they could over the festive period.

The number of fresh ‘initial claims’ for unemployment support fell by 10,000 in the week to 4th January, to 201,000.Economists had expected a small rise, to 214,000.An encouraging decline in initial unemployment claims.However, keep in mind that seasonal adjustments are very tricky around this time of the year.On a non-seasonally-adjusted basis, initial claims are over 300K.

pic.twitter.com/MqOO1iN8cjJust in: US companies added fewer employees to their payrolls than expected last month, new data shows.Payrolls operator ADP has reported that US firms added 122,000 new workers in December, below the 140,000 which Wall Street economists predicted.Services companies added 112,000 jobs – half in education and health services – while goods producers added 10,000 employees