Susannah Streeter, head of money and markets at Hargreaves Lansdown, said expectations for interest rate cuts had been scaled back, given forecasts that the Budget could push up inflation over the next two years.
“Financial markets are now not expecting rates to fall below 4% until 2026,” she said.
“This has been reflected in the spike in UK gilt yields to some extent, but given that sterling has remained lower against the dollar, it also indicates that there is a growing nervousness about the way Labour is steering the economy.”
She said bond yields were set to stay “volatile” as institutions financing government borrowing “keep a more suspicious eye trained on what the swollen investment budget will be spent on”.