Pound slides to 14-month low as gilt pain intensifies

The pound fell to its lowest since late 2023 on Thursday, under pressure from a selloff in global bonds that has driven the UK government’s borrowing costs to their highest in over 16 years, which has reignited concern about Britain’s finances.

Sterling was last down 0.6% at $1.2295, having touched its lowest since November 2023 earlier in the day, while the cost of hedging against bigger price swings over the coming month jumped to its highest since the March 2023 banking crisis.

Global bond yields have soared this week on the back of concern about rising inflation, reduced chances of a drop in interest rates, uncertainty over how US President-elect Donald Trump will conduct foreign or economic policy and the prospect of trillions of dollars in extra debt.

The UK market has been hit particularly hard. Benchmark 10-year gilt yields have spiked by a quarter point this week alone to their highest since 2008, as confidence in Britain’s fiscal outlook deteriorates.

Finance minister Rachel Reeves is facing her first major test, as turmoil in the bond market could force her to cut future spending.

Ordinarily, higher gilt yields would support the pound, but right now, that relationship has broken down, reflecting investors’ worry about the country’s finances.

“This is the bond market starting to discipline the UK government. And at the moment they want to fight the market, and that never ends well,” Lloyd Harris, head of fixed income at Premier Miton Investors, said.