London Daily

Focus on the big picture.
Sunday, Jul 13, 2025

A tale of two borrowers: investors punish Britain but spare Germany

A tale of two borrowers: investors punish Britain but spare Germany

Investors have dumped UK assets after the British government announced plans for a huge rise in borrowing to fund tax cuts, but Germany has not suffered the same punishment despite a vast borrowing spree of its own.

Germany has unveiled a 200 billion euros ($196.10 billion)package funded by new borrowing to pay for capping natural gas prices and cutting taxes on fuels sales to shield companies and households from the impact of soaring energy prices after Russia cut energy supplies to Europe.

This represents around 5% of Germany's total gross domestic product and is equal to roughly half of Germany's funding needs this year, but its government bond yields - a gauge of its borrowing costs - have actually dropped.

In contrast, Britain's "mini" budget announcement to fund tax cuts and an energy price cap by borrowing less than half of Germany's amount sent UK stocks, bond prices and the pound into free fall. The Bank of England had to step into the bond market to tame the volatility and push yields down.

Britain's borrowing costs over 10 years are now twice those for Germany, showing how investors view the two countries very differently. ,

Germany's "package is more broad-based in terms of support compared to the perception (of the) mini budget in the UK," said Annalisa Piazza, fixed income research analyst at MFS Investment Management.

The British government's move to cut the top tax bracket "was one of the major sell-off points for the market," she said. The wealthy are less likely to cut spending due to inflation, so markets are questioning how much the UK’s tax cuts would boost growth, unlike in Germany, Piazza said.

Germany's is "supporting those parts of the population that can make a difference in terms of spending," she said.

Britain's tax cuts have drawn a rare rebuke from the IMF for being untargeted at a time of high inflation and will likely keep pressure on its budget deficit even after energy support measures expire.

LONGER-TERM


To be sure, German yields have risen sharply in September, though far less than in Britain. The market's reaction to the German plans may also be muted as investors are waiting for more detail on when exactly Germany will complete the funding, and how much of it may be raised by longer-term debt, which puts more pressure on markets.

On Wednesday, Germany's debt office had already said it would raise 22.5 billion euros more during the fourth quarter than originally planned for government spending to tackle the energy crisis. This represents an increase of just 5% for the year. Less than half of it will be raised by longer-term debt.

So even before Germany's bumper 200 billion euro package was unveiled, the government's borrowing figures were far less than the 72 billion pounds ($79.98 billion) Britain plans to raise over the next six months, representing a roughly 45% increase for this financial year, which will also be raised mostly through longer-term debt.

Gerard Fitzpatrick, head of fixed income at Russell Investments, said he expects issuance backing the German spending to be more spread out than in Britain.

"I think a more sensible, longer-term sensible spending programme is somewhat more acceptable to the bond market," he said.

Also, Germany, which has a much lower debt-to-GDP ratio than Britain, will raise the money in a way that will allow it to comply with its "debt brake", which places a strict limit on new borrowing other than in exceptional circumstances.

"The other message is that behind the protective screen we are putting up around us the debt brake will continue to work: a clear message to the world's providers of capital that Germany remains solid," Germany's finance minister Christian Lindner said on Thursday.

($1 = 1.0199 euros)

($1 = 0.9002 pounds)

Newsletter

Related Articles

0:00
0:00
Close
Renault Shares Drop as CEO Luca de Meo Announces Departure Amid Reports of Move to Kering
Senior Aides for King Charles and Prince Harry Hold Secret Peace Summit
Anti‑Semitism ‘Normalised’ in Middle‑Class Britain, Says Commission Co‑Chair
King Charles Meets David Beckham at Chelsea Flower Show
If the Department is Really About Justice: Ghislaine Maxwell Should Be Freed Now
NYC Candidate Zohran Mamdani’s ‘Antifada’ Remarks Spark National Debate on Political Language and Economic Policy
President Trump Visits Flood-Ravaged Texas, Praises Community Strength and First Responders
From Mystery to Meltdown, Crisis Within the Trump Administration: Epstein Files Ignite A Deepening Rift at the Highest Levels of Government Reveals Chaos, Leaks, and Growing MAGA Backlash
Trump Slams Putin Over War Death Toll, Teases Major Russia Announcement
Reparations argument crushed
Rainmaker CEO Says Cloud Seeding Paused Before Deadly Texas Floods
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
×