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When politiciansGDPCBIAIYour browser does not support the element. start talking about bond yields it is a sure sign that trouble is afoot. By that measure, the new year has been troublesome indeed for the Labour government. Yields on 30-year gilts (British government bonds) have spiked to a near-three-decade high. Sterling has tumbled. Businesses are grumbling, too, about chunky tax rises and a higher minimum wage due to bite in April—as well as the lack of a convincing plan for boosting growth. The last time firms were this downbeat, surveys say, was after Liz Truss’s brief and disastrous premiership in 2022 (see chart 1).Six months after the government entered office, politicians are debating how much it is to blame for this gloomy picture. Labour is hardly responsible for “global volatility in markets”, said Rachel Reeves, the chancellor. Her Tory counterpart, Mel Stride, insisted it was “a crisis made in Downing Street”. On January 15th softer-than-expected inflation figures soothed things a little. But eyeballs remain glued to Bloomberg terminals, or other, cheaper streams of market data.On the narrow question of why gilts have been sold off so sharply, Ms Reeves has a point. A contrast with Ms Truss’s 49-day tenure is that gilts have moved in tandem with sovereign bonds globally (see chart 2). Treasury yields shot up after Donald Trump’s win in November as markets absorbed his inflation-inducing plans for tariffs, tax cuts and deportations.But yields have risen furthest and fastest in Britain. Sterling has also been particularly wobbly, falling against most other currencies. That suggests that investors are fretting about Britain’s ability to keep government debt under control. Given the country’s recent record, such worries are hardly unreasonable. In that light, Ms Reeves’s choice to deliver a big-borrowing budget in October looks .However blame is divided, Ms Reeves is stuck with the consequences. Most immediate is the prospect of breaking her own fiscal rules, which constrain how much Britain can borrow. She loosened them substantially in the budget, but gilt moves since then have eaten all that space away, estimates Capital Economics, a consultancy. The Office for Budget Responsibility, the fiscal watchdog, will publish its own assessment, along with broader economic forecasts, on March 26th. Unless bond yields come down again, Ms Reeves may have to pencil in further tax rises or spending cuts for the final year of the parliament.Businesses are also in a sour mood. One gripe is the main tax rise of the budget: an annual £25bn ($31bn, or 0.9% of ) increase to employers’ national insurance, a payroll tax levied on firms. That, along with new labour-market regulations and a minimum wage that is now two-thirds of average earnings, will make it more expensive for firms to hire and keep workers. Some firms are already holding back. Giving workers sick pay and parental leave as soon as they start a job will cost businesses £5bn a year, according to the government’s own analysis.In November more than 80 British retailers including Boots, Next and Tesco criticised the budget, warning that job losses and price rises would be “inevitable”. Following the latest turmoil Rupert Soames, the chair of the , Britain’s biggest business lobby, told the government to “stop digging”. That is a striking volte-face, given that bosses cosied up to Labour before the election. Some of their disappointment may stem from having previously seen the party through rose-tinted spectacles. It was obvious, for example, that Labour would find ways to raise money for creaking public services.More surprising has been the lack of a convincing narrative for boosting Britain’s economic prospects. In her first speech as chancellor, Ms Reeves warned of “difficult choices” and “the worst set of circumstances since the second world war”. “They need to be very careful that the political need to keep hammering the Tories doesn’t turn into a self-fulfilling prophecy around the state of the British economy,” says one City boss. Firms want reassurance. “Business confidence is at rock bottom,” says Anna Leach, chief economist at the Institute of Directors.Despite Ms Reeves’s insistence that “growth is the number-one mission”, the government’s approach has been piecemeal at best. Ms Reeves passed up the opportunity to use the budget to reform Britain’s tax system in a more growth-friendly direction. Entreaties to the European Union to boost trade links and undo part of the economic hit from Brexit have been slow and muddled. The much-touted “stability dividend”—Labour’s hope that merely ending the recent chaos in British politics would be enough to make investment flow in—has yet to amount to much.There are some brighter spots. Efforts to cosy up to China could yield a small export boost. A plan to attract investment looks promising. Most significant of all could be much-trailed reforms to Britain’s sclerotic planning system, due to be introduced in Parliament this spring.After the latest wobbles, Ms Reeves has promised to go “further and faster” in pursuit of higher growth. Regulators have been cajoled to cut red tape. Wonks and lobbyists are pushing the government to sign off on shovel-ready infrastructure projects. The spurt of energy is welcome—if it results in a more convincing plan for Britain’s economy, the country will owe the bond vigilantes a “thank you”.
