Pound Sterling was under pressure on Monday, slumping to a 14-month low and trading at 1.2149 against the US Dollar.
The FTSE 100 was forecast to open 22 points lower at 8226, falling .9% since Friday. Meanwhile, UK 10-year gilt yields have surged to 4.89%, their highest level since the 2008 financial crisis. The yield on 30-year gilts have also hit fresh 27-year highs, up five basis points at 5.5%.
Gilt yields, which reflect the cost of government borrowing, move inversely to prices. This means when yields rise, it becomes more expensive for governments to borrow.
The sharp increase in gilt yields has been linked to a broader global sell-off in bonds.
Experts at Trading Economics said: “Typically, higher yields typically boost a currency, but the decline points to capital flight driven by fears of persistent inflation and fiscal instability.
“Rising borrowing costs also strain Chancellor Rachel Reeves, whose fiscal flexibility is shrinking. In October, Reeves unveiled a budget including £142billion in borrowing and a £74billion annual spending increase, raising fiscal sustainability concerns.
“Inflation fears also persist, with CPI, wage growth, and inflation expectations rising.”
Traders now expect only two Bank of England rate cuts this year, down from over three predicted a month ago.
Oliver Faizallah, head of fixed income research at Charles Stanley, commented: “We’ve seen a global bond sell off driven by elevated inflation globally, volatile politics and political policy (with US tariffs being a large focus on future inflation) and increasing government debts.
“UK government bonds have been punished and sold off more so than the rest of the world. This seems to be due to concerns around sticky inflation leading markets to believe we’ll have higher interest rates for longer.”
Ms Reeves came under fire last week for proceeding with a planned trip to China rather than remaining in the UK to address the country’s economic woes.
During her trip over the weekend, Ms Reeves insisted her fiscal rules were “non-negotiable” and said she would “take action” if necessary to ensure they were met.
The Chancellor’s Cabinet colleagues have sought to defend her, with Health Secretary Wes Streeting urging the public to “give her time”.
While Mr Streeting acknowledged Ms Reeves was under “pressure”, he told the Jewish Labour Movement’s annual conference on Sunday that he had “total confidence” in her handling of the economy.
But Conservative shadow business secretary Andrew Griffith said a new survey showed Ms Reeves had “made Britain more vulnerable because of her decisions”.
The survey of UK chief financial officers (CFOs) by consultancy Deloitte found a net 26% felt more pessimistic about their businesses than they did three months ago.
The figure, based on a quarterly survey carried out in December, is the first time CFOs have felt more pessimistic than optimistic since June 2023, just before the UK slipped into recession.
Ian Stewart, Deloitte’s chief economist, said: “With cost control to the fore in the wake of the Budget, CFOs have trimmed expectations for corporate investment, discretionary spending and hiring in the next 12 months.”
The Deloitte survey found cutting costs was the top priority for CFOs after the Chancellor’s increases to national insurance, as it has been for almost three years, while expectations about increases in hiring fell to a four-year low.
However, the survey was not universally negative, with Mr Stewart saying businesses still expected to see growth “picking up over the summer” and exceeding 2024’s figure and the performance of the eurozone on the back of “easy fiscal policy and interest rate reductions”.
