Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, added: "The Truss administration wants to put a rocket under growth, but there is a risk that after a first boost, the policies could crash and burn, particularly if government borrowing costs soar further.
"There are signs that buyers of UK government bonds are becoming even more nervous about the government’s ‘splash the cash’ policies, given the mounting debt pile."
The trade fall-out from the drop in sterling could prove devastating, said Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Management.
"If foreign investors lose confidence in the country, its government and economy, which is happening at scale, sterling could fall much further and the fallout will be devastating…This will keep inflation higher for longer and growth lower.”
He highlighted the UK’s global trade deficit.
“[The UK] needs to attract capital to fund this gap and right now it is doing the exact opposite.”
There could be a positive outcome for DB pension schemes, said Ian Mills, partner at Barnett Waddingham
"The effect of rising gilt yields will be significant – DB pension scheme liabilities will have fallen sharply in just a couple of days, perhaps by as much as 10 per cent for some schemes.
Many schemes will find that their funding positions have improved sharply, particularly those that have not fully hedged their interest rate and inflation risks, he said, adding that for many this will present opportunities to de-risk.
However, DB schemes using liability-driven investments will come under pressure, especially if the rise in yields is sustained, he added.
“The rise in gilt yields will likely cause schemes to have to recapitalise hedges – some will be able to do so from cash reserves but others will find they are forced to sell other assets.
“Some schemes could even be forced to unwind hedges exposing them to the risk of reversals in yields.”
carmen.reichman@ft.com, sally.hickey@ft.com
