Bank of England governor Andrew Bailey has urged Chancellor John Healey to agree a budget that reassures financial markets, after the UK's medium-term borrowing costs climbed to a fresh 19-year high amid a sell-off in government bonds.
Key facts
- Bank of England governor Andrew Bailey urged Chancellor John Healey to produce a credible budget.
- UK medium-term borrowing costs have hit a fresh 19-year high.
- Investors are offloading government bonds amid fears of rising inflation.
- Bailey said fiscal policy must be credible and seen as such by financial markets.
The governor of the Bank of England, Andrew Bailey, has called on the chancellor, John Healey, to use the upcoming budget to reassure financial markets, according to the Guardian. His intervention came after the UK’s medium-term borrowing costs reached a fresh 19-year high.
Bailey told the chancellor that “whatever the stance of fiscal policy, it must be credible and be seen as such by financial markets,” the Guardian reported. The message underscored concern about how investors are responding to the government’s financial position.
The warning follows a period of turmoil in the bond market, with investors offloading government bonds that were previously considered safe havens. The Guardian reported that the sell-off has been driven by fears of rising inflation.
Bailey’s comments were addressed not only to the UK but to all governments caught in the crosshairs of financial speculators. He said such governments needed to avoid market turmoil that raises the interest paid on their debt.
Rising borrowing costs can increase the cost of servicing government debt, placing additional pressure on public finances. The governor’s remarks signal that credibility with markets will be a key test for Healey as he prepares the budget.
Why it matters
Higher government borrowing costs mean more taxpayer money goes toward servicing debt rather than public services. The governor's warning highlights the pressure on the chancellor to deliver a budget that markets trust, which could shape decisions on tax and spending.
Frequently asked questions
What did Andrew Bailey ask the chancellor to do?
According to the Guardian, Bailey urged Chancellor John Healey to agree a budget that convinces financial markets, saying fiscal policy must be credible and be seen as such by markets.
Why are UK borrowing costs rising?
The Guardian reports that investors have been offloading government bonds previously considered safe havens amid fears of rising inflation, pushing medium-term borrowing costs to a fresh 19-year high.
Who are these warnings aimed at?
Bailey addressed all governments caught in the crosshairs of financial speculators, saying they needed to avoid market turmoil that raises the interest paid on debt.