It has been a bleak winter for the Government’s hopes that the economy might turn a corner. Markets have been volatile, with the cost of government borrowing rising to its highest level since July 2008 with the pound falling sharply. And there are signs that growth has hit a brick wall, with GDP flat in Q3 2024. So in this edition of the MPO we take a closer look at what has been going on, and discuss how the Government should respond. We find that recent changes in yields have been largely internationally driven, with UK-specific concerns playing a relatively small role. But there is little comfort for the Government here, as recent volatility suggests the UK has become more vulnerable to changes in investor sentiment. In any case, the rise in interest rates will hit both public and household finances. Government debt-servicing costs are still around 0.5 percentage points higher than the OBR forecast in October, representing an additional £7 billion of annual borrowing. […]