Borrowing rates have increased following Rachel Reeves‘ Budgetreaching a one-year high on the bond market, sparked tense comparisons with the mini-budget of September two years ago which put an end to the former prime minister Liz Trussthe political career of.

But today’s move is minor in comparison. What’s more, news has emerged that could explain some of the bond market’s fears.

UK 10-year bond yields are now at 4.48 per cent, up from around 4.24 per cent just before Ms Reeves presented her budget, an increase of just under a quarter of a percentage point.

Holders of UK government debt sold some of it, causing bond prices to fall, meaning an increase in the amount of interest they earn.

The change was less radical than that which followed Ms Truss’s mini-budget disaster, said Hal Cook, senior investment analyst at stockbroker Hargreaves Lansdown.

“In what was a huge move, the yield on 10-year government bonds rose from around 3.3 percent a few days before this mini-budget, to around 4.5 percent a few days after.”

More recently, bond yields have been rising since mid-September, he said. “There are several reasons for this, and the impending budget is one of them. Uncertainty surrounding this specific budget has made bond investors nervous, with expectations of higher future borrowing particularly weighing on sentiment about the attractiveness of UK government debt.

On top of that, it emerged today that the public spending watchdog, the Office for Budget Responsibility, got it wrong in its calculations about how much leeway Ms Reeves would give herself when she would move to a new measure of national debts.

Ruth Gregory, Deputy Chief UK Economist at Capital Economics

A March estimate of £62bn was an “error”, she said in a footnote first spotted by Bloomberg, and the actual figure was £18bn lower, leaving markets to wonder if this was making finances too tight for Ms Reeves.

Apart from the OBR error and the modest nature of the increase in the cost of debt, there are myriad other differences between this week’s Budget and Ms Truss’s.

The market went wild because Ms Truss planned to use debt to pay for tax cuts and hoped it would lead to a growth spurt – the details of her plan were not explained. She also claimed that her plan could be carried out without any cuts in government spending, something few economists agreed with.

The International Monetary Fund has openly criticized Ms Truss’s plans, while welcoming Ms Reeves’ budget. Both measures were considered unusual for the UN agency.

In the days following Ms Truss’s budget, she came under increasing pressure to resign. She hoped that her chancellor Kwasi Kwarteng falling on his sword would save her, but she ultimately resigned a month later under pressure from her MPs.

A week before his resignation, the Star of the day The newspaper asked her if she could survive on lettuce. She couldn’t.

Polls at the time showed a 36-point lead for Labor, which would leave its Conservative Party with just 22 seats in Parliament.

It also caused the pound sterling to plummet, with sterling at one point approaching a value of barely a dollar.

Rapidly rising borrowing rates have upended the mortgage market, ruining the home buying plans of thousands and adding billions to borrowing costs.

The unrest also wiped £425 billion from the valuation of pensions in 2022, according to a report published this year by the pensions regulator. Some pension funds invested heavily in public debt have also bet on low returns. They were forced to sell this debt, which pushed yields even higher. They eventually recovered with help from the Bank of England.

Ruth Gregory, deputy chief UK economist at Capital Economics, said: “The fallout on markets from Wednesday’s budget is a far cry from the 2022 mini-budget episode. Although we cannot entirely rule out With the possibility of a rapid rise in government bond yields triggering a self-perpetuating cycle of further price declines, we don’t think this is the start of another “Liz Truss” type scenario.

It is also widely acknowledged that Ms Reeves’ hand was somewhat forced by the mess she inherited from the previous government. The Office for Budget Responsibility said the previous government spent an extra £9.5 billion at the start of the year, which “was not disclosed to the OBR”.

However, the rising cost of debt will not be good news for Ms Reeves. Of the UK’s debt of £2.69 billion, a quarter of a percentage point increase in borrowing costs implies additional interest costs of £6.7 billion per year. In practice, debt costs are fixed when bonds are sold, but if the higher yields persist, it will cost the taxpayer more when more debt is issued.

Ms Reeves also played down the impact, saying “markets will evolve at some point” and sought to reassure her commitment to “economic and fiscal stability”.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), had warned that “implausibly small spending increases” in the Budget meant taxes would likely have to rise again if Ms Reeves’ growth plan backfired. him.

But the chancellor told Channel 4 she would “absolutely not” return to raising taxes once again.