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LONDON, UNITED KINGDOM – MARCH 26, 2025: Britain’s Chancellor of the Exchequer Rachel Reeves leaves 11 Downing Street ahead of the announcement of the Spring Statement in the House of Commons in London, United Kingdom on March 26, 2025. (Photo credit should read Wiktor Szymanowicz/Future Publishing via Getty Images) Wiktor Szymanowicz | Future Publishing | Getty Images Britain’s government is planning to ramp up public spending — but market watchers warn the proposals risk sending jitters through the bond market further inflating the country’s $143 billion-a-year interest payments. U.K. Finance Minister Rachel Reeves on Wednesday announced the government would inject billions of pounds into defense, healthcare, infrastructure, and other areas of the economy, in the coming years. A day later, however, official data showed the U.K. economy shrank by a greater-than-expected 0.3% in April. Funding public spending in the absence of a growing economy, leaves the government with two options: raise money through taxation, or take on more debt. One way it can borrow is to issue bonds, known as gilts in the U.K., into the public market. By purchasing gilts, investors are essentially lending money to the government, with the yield on the bond representing the return the investor can expect to receive. Gilt yields and prices move in opposite directions — so rising prices move yields lower, and vice versa. This year, gilt yields have seen volatile moves, with investors sensitive to geopolitical and macroeconomic instability. The U.K. government’s long-term borrowing costs spiked to multi-decade highs in January, and the yield on 20- and 30-year gilts continues to hover firmly above 5%. Official estimates show the government is expected to spend more than £105 billion ($142.9 billion) paying interest on its national debt in the 2025 fiscal year — £9.4 billion higher than at the the time of…

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Filed under: News - @ June 12, 2025 2:22 pm