UK Chancellor Rachel Reeves returned from China over the weekend, having embarked on a trip aimed at strengthening economic ties with Beijing. This visit, however, drew criticism from the Conservative party, which questioned the timing given the current volatility in financial markets. The UK government is under scrutiny as borrowing costs across Europe, including Germany, France, Spain, and Italy, have shown an upward trend.
On Tuesday, the yield on the 10-year gilt marginally decreased to 4.87%, following a rise to nearly 4.9% on Monday—its highest level in 17 years. Similarly, the 30-year gilt yield slightly edged down to 5.42% from 5.44% the previous day, marking its peak in 27 years. Meanwhile, the pound saw a modest increase to $1.22 early on Tuesday, recovering from a dip to around $1.21 on Monday, its lowest level since November 2023. Despite these fluctuations, UK government borrowing costs have stabilized after a rocky few days.
Experts speculate that tariffs proposed by US president-elect Donald Trump will likely trigger increased inflation in the US. This anticipated inflation could result in persistently high interest rates not only in the US but also globally, exerting additional pressure on international markets.
In light of these developments, the UK government faced questioning in the Commons regarding its economic management strategy. Prime Minister Sir Keir Starmer defended Chancellor Reeves, commending her for doing an "amazing job" in her role.