The UK’s long-running “risk premium” in financial markets appears to be unwinding, with economists claiming investors are regaining confidence in Rachel Reeves’ fiscal strategy — and that the shift could save taxpayers billions of pounds over the next five years.
New analysis from the Institute for Public Policy Research (IPPR), a think tank with longstanding ties to Labour, shows gilt yields have fallen faster than those in the US and eurozone since September. The move follows a turbulent year in which UK borrowing costs climbed significantly above other G7 economies, fuelled by persistent inflation, weak growth, and speculation over the new government’s tax plans.
According to the IPPR, yields on UK government bonds have dropped by 0.2 percentage points more than their American and eurozone equivalents over recent months. While modest, the reversal is viewed as a meaningful sign that Reeves’ public embrace of strict fiscal rules, first restated at Labour conference — has reassured money markets jittery since Liz Truss’s mini-Budget in 2022.
Earlier this year, the gap between UK and US 10-year bond yields had blown out to 1.1 percentage points; against eurozone debt, the margin was 0.6 points. On 30-year bonds the divergence was even starker, hitting 1.5 points versus US treasuries. Those differences amounted to a clear “risk premium”, a financial penalty imposed on the UK for political unpredictability and concerns over fiscal credibility.
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