London, United Kingdom – March 26, 2025: British Chancellor in the Treasury Rachel Reeves leaves 11 Downing Street before announcing the spring statement in the House of Commons in London, UK on March 26, 2025.
Szymanowicz takes off | Future publishing Gety pictures
The British government plans to increase public spending-but market monitors warn of risk proposals that send tensions through the bond market, which leads to an increase in payment payments of $ 143 billion in the country.
UK Finance Minister Rachel Reeves announced on Wednesday that the government Injecting billions of pounds In defense, health care, infrastructure, and other areas of economics, in the coming years. A day later, the official data of the British economy showed Driving more than expected 0.3 % In April.
Financing public spending In the absence of an increased economyLeaving the government with two options: collecting money through taxes, or taking more debts.
One of the ways you can borrow is the issuance of bonds, known as Gilts in the United Kingdom, in the public market. By buying Gilts, investors mainly lend money to the government, with the return on bonds that represent the return that the investor can expect.
Gold and prices are transmitted in opposite two directions – so high prices move less revenues, and vice versa. This year, the proceeds of the doctrine witnessed volatile moves, with investor investments sensitive to the lack of geopolitical stability and the macroeconomic economy.
The long -term borrowing costs of the UK government It rose to the highest levels in JanuaryAnd the return on 20- and 30 years Gilts It continues to hover with firmness above 5 %.
Official estimates indicate Spending more than 105 billion pounds (142.9 billion dollars) to pay interest On its national debt in the fiscal year 2025 – 9.4 billion pounds higher than the autumn budget time last year – and 111 billion pounds of annual interest in 2026.
On Wednesday, the government did not say how its newly detected height will be funded, and it did not respond to CNBC’s request to comment on where the money will come from. However, in it Fall budget last yearReeves made plans to raise taxes and borrow. After the budget, the Minister of Finance pledge Not to raise taxes again during the current working government in office, saying that the government “will not have to carry out a budget such again.”
Andrew Godwin, the UK’s chief economist in Oxford Economic, said that the British government may have to move forward in spending plans, with NATO Prepare To raise the goal of defense spending to member states to 5 % of GDP, and once U-Tor on winter fuel payments for the elderly and Other possible well -being reforms It is taken into account.
In addition, Godwin said, the budget responsibility office in the United Kingdom said “unsuccessful reviews” of his economic expectations in July, which will lead to a decrease in tax revenues and a rise in borrowing.
“If the modern movements are in the pricing of the financial market, the costs of debt service will be about 2.5 billion pounds ($ 3.4 billion) than they were at a time Spring statementGodwin warned in a note on Wednesday.
“Very fragile mode”
Mel Sterid, who is a shadow consultant in the UK opposition government, told CNBC on Thursday that spending review raised questions about whether it was “a huge amount of borrowing” will participate in financing the government’s financial strategies.
“The government is borrowing with consequences in terms of high inflation in the United Kingdom … and therefore interest rates are higher for a longer period.” “It adds to the debt mountain, and the costs of service that amount to 100 billion (pounds) annually, and this is twice what we spend on the defense.”
“I am afraid that the public economy will be in a very weak position to bear the type of spending and borrowing that this government announces.”
Stride argued that Reeves certainly “must increase taxes again in the next budget announcement in the fall.
“We have ended in a very brittle position, especially when you get drivers around the world,” he said.
“The high borrowing costs had already endangered” a small small financial hall at risk. “.
He said: “This low front can create the effect of snowball, as investors can become tense to the UK debt contract, which may lead to more sale until financial stability is restored.”
IAIN Barnes, the chief investment official of Netwealth, CNBC on Thursday that the United Kingdom was in a “state of financial fragility, so the maneuvering field is limited.”
“The market knows that if the growth is disappointed, this year’s budget may be forced to provide higher taxes and increase borrowing to finance spending plans,” said Barnes.
However, April Larusse, head of Invest Investment investment specialists, argued that there are ways to keep debt service burdens under control.
She said that the UK’s debt office, which issues Gilts, has a field to reshape the version – the maturity and type of Gilts issued – to help the government in borrowing costs under control.
“With the average return on Gilts 1-10 years by C4 % and the return on 15 years + Gilts by 5.2 % return, there is a field to make debt financing costs more at reasonable prices,” she explained.
However, Larusse pointed out that the debt benefits of the UK government have reached the equivalent of about 3.5 % of GDP in this fiscal year, and that excessive spending may exacerbate the burden.
“This increase is driven not only through high interest rates, which gradually translate into higher voucher payments, but also through high levels of government spending, which doubles the financial burden,” she said.
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