UK markets are orderly, no need to intervene, minister says

By David Milliken and Muvija M

LONDON (Reuters) -British financial markets remain orderly and there is no need for authorities to intervene, deputy finance minister Darren Jones said on Thursday after sterling fell to a 14-month low and 30-year borrowing costs hit their highest since 1998.

"UK gilt markets continue to function in an orderly way. Underlying demand for the UK's debt remains strong," Jones told parliament on Thursday.

"There is no need for any emergency intervention," Jones added in response to a follow-up question from the Conservative opposition about why finance minister Rachel Reeves - who is due to travel to China - was not in parliament.

British government bonds have fallen sharply for three days in a row, underperforming U.S. and German debt, although the higher yields attracted solid investor demand at regular bond auctions on Tuesday and Wednesday.

Ten-year gilt yields have risen by 0.22 percentage points this week - representing the biggest jump in a year though much less than the 0.69 percentage point surge that followed the mini-budget of former prime minister Liz Truss in September 2022.

Jones stressed the Labour government's commitment to new fiscal rules that target a balanced day-to-day budget and falling public sector net financial liabilities by 2029-30.

"These fiscal rules are non negotiable. That is why public spending will be within the numbers set out at the budget."

Jones did not directly respond to questions about whether the government would rule out raising taxes given higher borrowing costs.

Britain's Office for Budget Responsibility estimated that Reeves had just under 10 billion pounds ($12 billion) of headroom to meet the fiscal rules after her Oct. 30 budget.

But the rise in gilt yields and government debt interest payments mean many economists think Reeves is now on course to break the rules - a view a finance ministry spokesperson described as "pure speculation" on Wednesday.

The OBR will produce fresh budget forecasts on March 26 and the government will conclude a spending review in June.

Sterling and gilt yields were little changed as Jones spoke. Ten-year gilt yields were up 0.02 percentage points on the day at 4.82%, but below a peak of 4.925% hit early in the day.

Matthew Amis, investment director at asset manager abrdn, said Jones' remarks had not eased market concerns.

"We have the OBR in March, and it's the first week in January, so what happens to the gilt market in between now and March?", he said. "It would have been better if we had more information there, just to calm markets down."

($1 = 0.8139 pounds)

(Additional reporting by Harry Robertson, Sarah Young, Suban Abdulla, Catarina Demony and Sam Tabahriti; editing by Christina Fincher)