London Daily

Focus on the big picture.
Thursday, Oct 15, 2026

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
MI5 Warns of Growing Russian Sabotage and Espionage Threats Across Britain
UK Prime Minister Andy Burnham Plans Brussels Talks to Renegotiate Post-Brexit Trade Deal
MI5 Warns of Rising Russian and Iranian Sabotage Threats to British Military Facilities
UK Prime Minister Andy Burnham Pledges Closer EU Ties as MI5 Reveals Russian Brexit Interference
UK Orders Security Review Following Reported Killing of Former Politician Ann Widdecombe
UK Prime Minister Andy Burnham Meets German Chancellor Merz to Strengthen European Security Ties
Nearly 100,000 NHS Patients Treated in Hospital Corridors as England Braces for Winter Pressures
UK Government Rejects US-Russia Diesel Agreement and Reaffirms Sanctions Against Moscow
UK and Germany Agree to Deepen Security and Economic Cooperation Following Berlin Talks
British Prime Minister Burnham Pledges Closer EU Ties During Visit to Germany
UK Announces New Sanctions on 17 Russia-Linked Entities During Foreign Secretary's Ukraine Visit
UK and Germany Finalize Kensington Treaty to Strengthen Defense and Technology Cooperation
Britain Maintains Diplomatic Mission in East Jerusalem Despite Israeli Closure Deadline
English Councils Push Government to Rethink Proposed Funding Cuts
Scottish Homebuilding Falls to Lowest Level in 11 Years
BBC Chief Matt Brittin Defends Restructuring as Staff Challenge Job Cuts
UK Finance Warns High Energy Costs and Bond Yields Are Complicating Fiscal Outlook
UK Adopts All 44 Recommendations on Regulating AI in Healthcare
Chancellor John Healey Prepares Autumn Budget as Borrowing Costs Strain Public Finances
UK Investigators See Strong Indications of Iranian Link After RAF Fairford Security Operation
Laura Trott Pledges Tighter Controls on Political Activism in UK Classrooms
Welsh Ministers Launch Long-Term Review of North Wales and Anglesey Crossings
Welsh Government Orders 18-Month Study of Road Solutions Around Newport
Reform UK MP Sarah Pochin Faces Scrutiny Over £800,000 Second Home Purchase
British Households Grow More Concerned About Fuel and Energy Prices
NHS Leaders Warn of Rising Winter Pressure on Emergency Departments
Kemi Badenoch Proposes £2.3 Billion Employer National Insurance Cut for Young Workers
Middle East Conflict Could Erase UK Fiscal Headroom, Economists Warn
Manchester City Found Guilty of Multiple Premier League Financial Rule Breaches
UK Security Services Find Strong Indications of Iranian Role in RAF Fairford Incident
Costa Coffee Returns to Operating Profit on Iced Drinks and Menu Changes
Asos Warns Customers After Unauthorized Access to Retail App and Data
Kemi Badenoch Puts Growth and Deregulation at Center of Conservative Conference
Campaigners Warn of Deepening Social Care Crisis for Disabled Adults
Study Finds Rising Early-Onset Cancer Rates Among Adults Under 50 in Britain
UK Coach Operators Warn High Diesel Prices Could Force Route Cuts
FCA Opens Independent Review Into Handling of Epstein-Linked Whistleblower Case
Argentina Vows to Block Falkland Islands Offshore Oil Development
UK Chancellor Prepares Fiscal Measures and Welfare Reforms Ahead of Autumn Budget
Sainsbury’s and Morrisons Explore Potential Multi-Billion-Pound Merger
UK Weighs Tariffs on Chinese Electric Vehicles to Align With European Union
UK Threatens Diplomatic Expulsions Over Planned Closure of East Jerusalem Consulate
UK Energy Price Cap Hits Three-Year High as Middle East Conflict Raises Costs
Seventh Arrest Made in Suspected Terror Plot at RAF Fairford
Systemic Education Collapse Sparks Mass Student Uprisings in France
Green Party Faces Backlash Over Resolution Equating Zionism With Racism
Conservatives Debate Scrapping Environmental Rules for New Homes
Cornwall Insight Warns UK Energy Bills Could Approach £2,000 This Winter
UK Coach Operators Warn of Service Cuts as Diesel Prices Exceed £2
Scottish Parliament Approves £68 Billion Budget With New Tax and Property Measures
×