Gilt Yields Rise as New U.K. Leader Announces Spending Plans

By Miriam Mukuru

Yields on U.K. government bonds climbed after new prime minister Andy Burnham announced spending measures and named officials in his cabinet, including John Healey to lead the Treasury.

Ten-year U.K. government bond yields hit a two-month high of 5.057% on Tuesday, Tradeweb data showed.

Yields started rising late Monday after Burnham said he would stick to the current fiscal measures but added that he would use any "flexibility" within the rules, raising concerns among investors that the new government could favor additional public spending that would be difficult to fund.

Sterling also fell to a one-week low against the dollar and the euro at $1.3357 and 0.8538 pounds per euro, respectively, according to LSEG data.

Burnham pledged to cut value-added tax on energy bills starting in October, to be funded by canceling the digital ID scheme planned by his predecessor Keir Starmer.

"The initial newsflow probably leaves us a bit more worried about the scale of spending commitments," Morgan Stanley chief U.K. economist Bruna Skarica wrote in a note.

Still, the rise in yields and falls in sterling were limited as investors reacted favorably to news of Healey's appointment.

"John Healey is a reassuring and broadly market-friendly choice," said Lale Akoner, global market strategist at Etoro. "His experience as both Economic Secretary and Financial Secretary to the Treasury suggests he understands how quickly markets can lose confidence if spending plans are not backed by credible funding."

That said, markets expect Healey to push for increased defense spending. Healey resigned from Starmer's government in June in protest at insufficient funding for defense.

Better-than-expected U.K. public finance data for June also calmed investors' concerns. The country's public borrowing stood at 16 billion pounds ($21.49 billion) in June, 33.1% lower than in June 2025.

The sharp drop in public sector borrowing in June removes some of the immediate pressure on public finances, AJ Bell senior pensions and savings expert Charlene Young said in a note.

At a cabinet meeting Tuesday, Burnham said he would announce more plans "over the coming days" but was careful to stress that he would stick to the fiscal rules.

"But always we will show how we are going to pay for it, what we are reprioritizing. That will be a theme that we will always come back to," he said.

The focus will now be on these announcements. A lack of confidence in how any new spending plans will be funded could spark a gilt selloff.

"The key risk for markets is that the government continues to emphasize popular spending measures without providing sufficient clarity on how they will be financed," TD Securities economist Julie Ioffe and rates strategist Pooja Kumra said in a note.

"If greater details do not emerge before the Autumn Budget, concerns over fiscal credibility, combined with elevated oil prices, could push 10-year gilt yields back toward their May peak of 5.20%," they said.

U.K. investors remain alert for any significant rise in public spending and have not forgotten the gilt crisis of 2022, triggered when former prime minister Liz Truss announced plans for big tax cuts without matching reductions in spending.

So far, investors are relieved at the smooth transfer of power from Starmer to Burnham, who was unchallenged for the leadership of the ruling Labour Party, Societe Generale analysts said in a note. If he succeeds in growing the economy, then investors could return to buying gilts.

"Political stability, a rare commodity since the EU referendum in 2016, could tempt investors to turn more bullish on gilts provided inflation and levels of government spending can be brought under control," the analysts said.

Write to Miriam Mukuru at miriam.mukuru@wsj.com

(END) Dow Jones Newswires

July 21, 2026 11:06 ET (15:06 GMT)