Ms Reeves is struggling to retain credibility with the bond markets, with investors accusing her of “flying kites” and “flip-flopping” ahead of the Budget.
They have sold off UK government bonds, or gilts. The falling gilt prices have caused a spike in the yields, which represent the interest rate that the British Government must pay to borrow money.
Having been “overweight” in UK government bonds, Axa on Friday shifted to a “neutral” stance by in effect selling long-term bonds and buying shorter-duration ones. Short-term debt protects investors’ money from falling bond prices and rising interest rates.
On Monday, the yield on 10-year gilts jumped again, before settling near 4.53pc. However, it still marks the highest level since mid-October, when traders began buying bonds – pushing down the yield – on expectations Ms Reeves would raise taxes to plug a black hole in the country’s finances.
Mr Trindade added: “From a fiscal perspective, it would have made a lot of sense to increase income tax, because that would have been a clean way to do it, it would have been a credible way to do it.
“It would have meant short-term pain, because obviously that would have had a negative impact on growth.
“But I think that would have been for longer-term gain, because it would have given space for the Bank of England to cut interest rates more aggressively over the course of 2026, and therefore lower the level of gilt yields.”
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