This glaringly obvious point seems to have been missed by almost everyone. But, of course if interest rates were cut – as is essential – the cost to government of its whole debt would fall by much more than £19 billion.
Spud thinks that if you cut the base rate then that reduces the coupon to be paid on already issued bonds.
Snigger.
“Spud thinks that if you cut the base rate then that reduces the coupon to be paid on already issued bonds.”
Or Spud accidentally reveals secret Labour policy to reduce the coupon to be paid on already issued bonds. Candidly only a neo-liberal fascist could call that a default.
Excellent logic.
A lot of UK gilt issues are index linked, so they’re reducing payments if higher interest rates have reduced inflation. I didn’t calculate by how much, because we would need to speculate on what inflation might have been, but it’s potentially a big number.
If we look just at the fixed coupon bonds expiring in the next 12M, and assume we re-issue at the coupon of the most recent 2024 issuance (4%), then we would roughly be looking at an extra 1.4bn per year in coupon payments, whereas if we were able to issue at 2% then we would be paying around 1bn less.
When the effects of these two are combined, it is not clear whether having interest rates as they are is reducing or increasing the cost of servicing the debt over the short or long term, but my guess is that the people at the BoE can do basic arithmetic too, and have figured out what path is best to manage overall debt servicing costs.
(I haven’t checked my numbers or data because I’m lazy)
I suppose they could cut the offered interest rate on new bonds and see if they’re actually all taken up.
Of course if they’re not, that’s an immediate crisis.
As someone working for somewhere with several billion of Gilts on the balance sheet I can tell you Spud has no clue. New issuance via the DMO will be at lower fixed rates as the base rate against which the price is compared by the market will have gone down.
Does depend on how much is issued though. Market bizarrely treats Gilts as risk free yet they trade wider (cheaper) than secured lending to banks. Why? Must be inflation risk as Gilts are liquid.
Currently UK debt is about 25% inflation-linked and 75% fixed. T-bills (floating rate) are a very small proportion.
Totally the opposite than he claims.
As someone working for somewhere with several billion of Gilts on the balance sheet I can tell you Spud has no clue
This did make me laugh – but rest assured your experience in the industry makes you an ‘unreliable witness’ in his eyes and his sycophants will make short work of you on FTF should you point out their idol has feet of clay (and that’s being charitable)
“ This glaringly obvious point seems to have been missed by almost everyone
… except I, the Great Professor Murphy!”
Of course, as others have pointed out above, there’s an obvious reason why he’s wrong.
But his hubris is so great that he thinks all the people with actual experience of a subject can miss a huge error that only he, with no real knowledge, has spotted.
I see Murphy was on the Jeremy Vine show today (again). One tw@t and one cvnt both funded by the BBC licence feepayer.
Joey Barton recently agreed to pay 75k in settlement of a defamation claim for calling Vine a bike n0nce, among other select insults.
Unless anyone knows better, I don’t think bike n0nce is an appropriate description for Murphy as I understand his vehicle of choice is still a Berlingo.
ChatGPT would write his blog with more sense and accuracy. And that’s setting the bar very low.