Market reaction Fears of fiscal crisis push up yield on government debt

UK government borrowing costs rose sharply yesterday amid speculation over Rachel Reeves's position as chancellor, as City investors warned that Labour's welfare U-turn had blown a multibillion-pound hole in the public finances.

- Richard Partington

After Keir Starmer failed initially to give his full backing to a tearful chancellor at prime minister's questions yesterday, the yield on 10-year UK government bonds was on course for the biggest jump in a day since Liz Truss was in No 10.

The yield - in effect the interest rate - rose by as much as 0.2 percentage points to trade close to 4.7%.

Highlighting investor unease over the government's tax and spending plans, the pound also fell by more than 1% against the US dollar.

Downing Street later said Reeves would remain in her post and had not offered her resignation, after a broad rebellion by Labour MPs forced the government to withdraw a planned £5.5bn cut to disability benefits.