Economists at Goldman Sachs have added their sixpenny worth to the gloomy headlines around the health of the UK's finances.
Following Chancellor Rachel Reeves’ tax raid, the Wall Street titan now sees the UK economy growing by 0.9% this year, compared to the official forecast of 2%.
This week’s surge in gilt yields will add to the problem, Goldman adds.
“We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment, with the increase of the last few days worth around 0.1 percentage point of additional growth drag this year,” it said.
This is a function of Reeves’ borrowing plans, says the bank.
“The rise in UK long-term yields in recent days is not driven by shifts in UK growth expectations or monetary policy, but primarily by concerns around the UK fiscal outlook.”
Reeves currently is on a trade visit to China with Bank of England Governor and former boss Andrew Bailey.
JP Morgan sees either tax rises or spending cuts
JPMorgan analysts have also weighed in with their opinion about surging UK borrowing costs, warning chancellor Rachel Reeves may be forced to ditch her Budget promises.
According to the bank, the 50 basis point rise in short and short and longer-term yields since the October Budget will add £6 billion to government borrowing over its five-year period.
“While significant, the greater fiscal issue since the Budget has been weak growth,” JPMorgan added.
The Office for Budget Responsibility had forecast economic growth of 2% for this year, analysts pointed out, “whereas the latest data suggest the economy is stagnating”.
Were there a sustained 1% miss on gross domestic product, JPMorgan said borrowing would rise by close to £20 billion, on top of Reeves' £70 billion spending plan.
“Unless the macro picture [...] changes, the chancellor will ultimately be faced with the familiar choice of changing or suspending the fiscal rules to allow more borrowing, cutting spending or raising taxes,” JPMorgan warned.