Trump tariffs risk ‘pushing up borrowing costs for Reeves'
Schroders warned that the US president's trade policies and tax cutting plans would 'cause debt dynamics to worsen' around the world.
The interest bill on Britain's national debt risks being dragged higher because of 'US influence over the global economy and financial system', the FTSE 100 asset manager said.
US borrowing costs act as a benchmark for the world and British rates track trends in the American market particularly closely.
This link was illustrated in January when Britain's borrowing costs briefly surged. This was 'driven in large part by the impact of rising US treasury yields' and their impact on UK gilts, as government debt is known, Schroders said.
US bond yields – a benchmark for the cost of servicing national debt globally – have risen sharply since Mr Trump announced his 'liberation day' tariffs in April.
The 30-year US treasury yield has climbed from 4.41pc in the immediate aftermath of the president's announcement to 4.95pc on Monday. Over the same period, the yield on UK 30-year gilts – the name given to UK bonds – has climbed from 5.11pc to 5.46pc.
Potential rise of borrowing costs
The rise has significant implications for the Chancellor. Each percentage point increase in US treasury yields 'causes fiscal positions in the UK and France to also deteriorate by about 1pc of GDP', Schroders estimated.
Schroders said: 'This dynamic can expose relatively weak sovereigns such as the UK and Brazil that rely on foreign funding.'
It said the 'huge uncertainty' caused by Mr Trump's tariffs and his 'one big beautiful bill' were 'adding to market concerns about the large US budget deficit'. As a result, US borrowing costs – and those around the world – could rise further.
David Rees, of Schroders, said: 'It remains to be seen if recent policy announcements by the Trump administration have damaged the 'exorbitant privilege' that the US has historically relied upon to fund large deficits.
'But even if foreign demand for treasuries holds up, rising yields could still drag long term interest rates higher in the rest of the world and expose already weak sovereigns such as France and the UK.'
The Chancellor faces a shortfall of up to £30bn in her upcoming Budget in the autumn, partially fuelled by rising debt costs.
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