Rachel Reeves' recent Budget has been described as “very, very different” from the mini-Budget presented by Liz Truss two years ago, according to a senior government official. Chief Secretary to the Treasury Darren Jones made these remarks to help stabilize markets following an increase in government borrowing costs and a decline in the value of the pound after the Budget announcement.

The government’s cost of borrowing has surged after the Chancellor revealed significant plans for increased spending, raising concerns about the necessity for additional fundraising. In an interview with the BBC, Jones emphasized new regulations that ensure public service expenditures are funded through tax revenues rather than relying heavily on borrowing each month. He acknowledged that market reactions to Budgets are common because they introduce a plethora of new information.

Jones highlighted that investors still carry apprehension stemming from past events during Truss’s tenure. He reassured that robust fiscal rules are now in place to guarantee everyday public spending is covered by tax income and not continuous borrowing. Additionally, there is a strong investment policy aimed at reducing debt relative to economic growth while fostering national investment.

On Thursday, yields on 10-year government bonds reached their highest point in a year at just over 4.52%, before slightly declining to 4.42% on Friday. UK government bonds, or gilts, are typically viewed as secure investments due to the low probability of repayment default. However, rising yields indicate increased perceived risk for investors lending money to the government.

Yields on shorter-term two-year bonds have also seen an uptick since the Budget announcement, with a significant one-day rise observed right after the Budget. These shifts are crucial as they affect not only how much more the government will pay to borrow but also influence rates on personal loans and mortgages.

In light of these changes, David Hollingworth from mortgage broker L&C noted that market reactions were being felt quickly. Some smaller lenders initially withdrew mortgage offerings, and bigger institutions like Skipton and Coventry have announced upcoming fixed-rate increases.

Hollingworth pointed out that it is a perplexing time for mortgage borrowers, especially with expectations of a potential base rate cut from the Bank of England while fixed rates are set to climb. He urged those considering fixed-rate options to act swiftly as rates may withdraw without warning.

While recent market movements show an increase in government borrowing costs and a slight dip in the pound’s value since Wednesday, these fluctuations are relatively minor compared to those observed following Truss’s mini-Budget. For instance, while the pound dropped 0.8% against the dollar earlier this week, it stabilized to about 0.5% lower by Friday afternoon—far less severe than previous declines during Truss’s administration.

Reeves noted she would refrain from commenting on market fluctuations but mentioned that both the IMF and the Office for Budget Responsibility had endorsed her Budget’s adherence to fiscal guidelines. Her proposals included nearly £70 billion in additional annual spending financed through business tax hikes and further borrowing.