Rachel Reeves' recent Budget has been characterized as “very, very different” from the mini-Budget presented by Liz Truss two years earlier, according to Darren Jones, a senior government official. His remarks aimed to reassure financial markets after an increase in government borrowing costs and a decline in the value of the pound, which followed Wednesday’s Budget announcement.

The government’s borrowing expenses rose significantly after the Chancellor revealed plans for substantial increases in spending, raising concerns about the potential need for additional funds. Jones emphasized to the BBC that new fiscal policies have been implemented to ensure that public service expenditures are covered by tax revenues rather than relying on borrowing every month. He acknowledged that investors typically respond to Budgets due to the influx of new information they provide.

Acknowledging prior market anxieties stemming from Liz Truss’s tenure, he highlighted that strong fiscal rules are now in place. These rules mandate that regular spending on public services must be financed through tax receipts rather than continual borrowing—a practice followed by the previous administration. Additionally, he noted an investment rule designed to ensure that while the government invests in various projects, overall debt will decrease relative to the economy’s size.

The interest rate or yield that the government pays on borrowed funds over a ten-year term reached its highest level in a year on Thursday but receded slightly on Friday. This increase is significant because it not only raises government borrowing costs but also influences rates for personal loans and mortgages.

However, it is essential to view these recent market changes in context. Since Wednesday, effective interest rates on government borrowing rose by nearly a quarter of a percentage point, and the pound fell by less than one percent—much smaller fluctuations compared to those following the previous mini-Budget. For instance, the pound dropped 0.8% against the dollar, reaching a two-month low, contrasting sharply with an 8% decline after Truss’s mini-Budget.

Moreover, there has been an overall rise in borrowing costs globally over the past month, predominantly driven by trends in the US market. The increased cost of government borrowing indicates that investors perceive greater risk in lending money to the government. Meanwhile, spokespersons for Sir Keir Starmer noted positive feedback from organizations like the IMF regarding the government’s current approach. In her Budget speech, Reeves outlined nearly £70 billion in additional annual spending funded through business tax increases and further borrowing measures.