Britain’s bond markets have delivered a sharp rebuke to Prime Minister Keir Starmer and Chancellor Rachel Reeves, fuelling uneasy comparisons with the financial upheaval seen during Liz Truss’s short-lived premiership.
The UK government’s abrupt reversal on welfare reforms has triggered a significant sell-off in gilts, pushing borrowing costs to their highest levels since the global financial crisis and reigniting concerns about the nation’s fiscal stability.
“The echoes of Truss in 2022 are unmistakable,” says Nigel Green, CEO of deVere Group. “Back then, it was a reckless mini-budget that shattered market confidence. This time, it’s a government lurching from one policy retreat to another, raising serious doubts about fiscal control and political authority.”
The government’s decision to abandon a planned £5 billion welfare reform package—following internal Labour Party opposition—has left a £6 billion gap in the public finances.
The shelving of key measures, including proposed changes to the Personal Independence Payment (PIP), has led investors to question whether the new administration is capable of making the difficult fiscal decisions required to maintain economic stability.
“Bond markets move on trust, consistency, and credibility,” says the deVere CEO.
“The sudden abandonment of major spending plans—without a clear alternative—signals weakness. Investors are now re-pricing UK risk accordingly.”
Yields on 10-year gilts have jumped to approximately 4.6%, their highest level since 2008. Meanwhile, the spread between UK government bonds and German Bunds has widened beyond 200 basis points—a threshold rarely breached in modern times, reflecting a rising premium demanded by international investors to hold British debt.
“The rise in gilt yields isn’t simply about global rate expectations or inflation concerns,” says Nigel Green.
“It’s a direct reflection of waning confidence in the government’s ability to stick to a coherent fiscal strategy. Markets remember the volatility triggered by Truss, and they’re seeing familiar warning signs again.”
Investor apprehension is mounting over the Starmer administration’s susceptibility to internal political pressures, with concerns that this early capitulation could signal a trend of fiscal indecision.
With inflation still hovering at 3.5% and public debt nearing 100% of GDP, the UK has limited capacity to withstand further fiscal slippage without incurring more significant market backlash.
“The fear is that this U-turn won’t be the last,” notes the chief executive.
“Once a government shows that it will reverse course under political pressure, every future policy announcement comes under immediate scrutiny. Investors start to question not just the numbers—but the government’s capacity to deliver.”
This deterioration in market confidence comes at a precarious moment for the UK economy. Growth remains fragile, consumer spending is under strain, and the Bank of England faces difficult decisions on interest rate policy. Rising gilt yields are likely to feed through to the wider economy, amplifying risks of a broader slowdown.
“Higher yields mean more expensive mortgages, tighter credit conditions for businesses, and a heavier interest bill for the government itself,” explains Nigel Green.
“It becomes a self-reinforcing cycle unless credibility is quickly restored.”
While some opportunistic investors may view the current gilt levels as a tactical entry point, the prevailing sentiment among institutions is one of caution, with political uncertainty weighing as heavily as economic fundamentals.
“The market’s view is that promises are no longer enough,” says Nigel Green. “Investors want to see concrete fiscal decisions backed by political resolve. Without that, the sell-off in gilts could intensify.”
For now, the onus is firmly on Starmer and Reeves to restore confidence and reassure markets that fiscal discipline remains a core priority. But after such an early and public stumble, rebuilding trust will be a formidable challenge.
“The government needs to act fast and decisively,” concludes the deVere CEO.
“The Truss crisis showed how quickly bond markets can turn against a government that loses its grip on fiscal management. The UK cannot afford to replay that scenario.”
