One careless line from Andy Burnham in Liverpool today could push Britain’s borrowing costs higher and land on every mortgage, pension and savings pot in the country, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations, as the Prime Minister delivers his first conference speech since entering Downing Street.
The comments from Nigel Green come as the UK’s 10-year gilt yield sits near 5.29%, its highest level since the global financial crisis and the sharpest climb anywhere in the G7, with Chancellor John Healey’s first Budget just a month away on 28 October.
He says: “Gilt investors are listening to this speech with a calculator in hand. Andy Burnham’s selling ‘hope again’, and the bond market wants to know who’s paying for it.
“Britain’s already had one lesson in how fast confidence can vanish. On his first day in office, a single remark about using ‘flexibility’ within the fiscal rules sent 10-year yields up eight basis points and pushed 30-year borrowing costs to 5.75%.
“UK debt underperformed both US and eurozone bonds.
“Markets have long memories.”
Healey used his own conference address yesterday to insist he and the Prime Minister are united on meeting the fiscal rules. Gilts barely moved.
Nigel Green says: “Markets heard the right words from the Chancellor and shrugged. Promises are cheap when yields are this high. Investors want figures, and the figure that matters most is headroom.
“Healey is estimated to have lost roughly half of the £23.6bn buffer he inherited. Rebuild it convincingly in October and gilts have room to rally. Let it shrink further and the UK risks a punishing repricing.”
Social care is expected to dominate Burnham’s address. A new national care service carries an anticipated price tag of £18bn a year, and the Prime Minister is signalling the pensions triple lock can’t survive in its current form.
The Office for Budget Responsibility projects state pension costs will climb by more than £15bn a year by 2030 if nothing changes.
The deVere CEO says: “Social care reform is long overdue, and the ambition deserves credit. But an £18bn annual commitment without a clear funding source would be read as borrowing by another name.
“Opening a debate on the triple lock shows real political courage. Investors will ask whether the savings arrive fast enough to count, because a reform that pays off in a decade does little for a Budget next month.”
Burnham is also expected to champion a publicly owned “Great British Grid” and wider state control of energy, water and housing.
Nigel Green says: “The Great British Grid could prove transformative, or it could prove ruinously expensive. For anyone holding UK utility shares or bonds, the questions are brutally simple. What will it cost, who gets compensated and on what terms?
“Vagueness here is dangerous. Capital flees uncertainty far faster than it ever comes back.”
The global backdrop leaves little room for error. US 10-year Treasury yields have hit 5.21%, their highest since 2007, as war in the Middle East drives oil sharply higher.
The Federal Reserve raised rates in September for the first time in three years, and markets expect the Bank of England to follow.
He says: “Britain doesn’t control the global forces lifting yields, but it does control its own credibility.
“With Treasuries at a 19-year high and oil surging, the UK has zero margin for self-inflicted damage.
“Every basis point on gilts flows into swap rates, then into mortgage offers, then into household budgets. Lenders have already lifted fixed rates by as much as 0.35 points.”
Nigel Green concludes: “‘Hope Again’ makes a fine conference slogan, but in the bond market, credibility is the only currency that counts.
“Burnham can deliver both, but he has to prove the numbers add up before October, because the gilt market won’t wait for the Budget to deliver its verdict.
“Anyone with UK exposure should be asking hard questions about how their portfolio holds up if borrowing costs keep climbing.”