Rachel Reeves’s plan to significantly increase borrowing in the Budget risks pushing up mortgage rates, Treasury analysis suggests.
An official modelling exercise indicates that the Chancellor’s plans to rewrite Britain’s fiscal rules could increase the cost of debt for consumers and businesses.
The Treasury research paper warns that a “fiscal loosening” of just one per cent of GDP could lead to a “peak increase in interest rates” of up to 1.25 percentage points.
The document goes on to warn that every increase in annual borrowing of £25 billion could increase interest rates by between 0.5 and 1.25 percentage points.
The actual numbers there, well, mebbe. But the general idea is obviously true. In order to attract mre money – as Spud would say, in order to gain more who wish to save with the government – the rates on offer will have to rise. For the standard supply and demand reasons. If there were more who wanted to lend more at current rates then they’d be doing so and so bidding up prices/down yields. Thus to gain more we need to change the price on offer to move along that demand curve.
Volume on offer and price are not independent of each others…..D’Oh.
What’s actually going to be interesting here is watching who tries to deny this.
no doubt cue the potato explaining that despite the govt spending like a drunken matelot on shore leave it would all pay for itself through the additional tax raised via the multiplier and that any inflationary effects are completely transitory and nothing to worry about. Meanwhile ttk is busily getting measured up for a nice suit paid for by his fairy godfather.
It’s all part of the grand plan to reduce our buying power and our effective agency.
Wouldn’t be easier to go down in to the cellar, shoot Scrooge Mcduck and spend the money the Tories stashed there so they could pretend there was no money and impose austerity?
A rule of thumb when trying to predict the budget is that if it doesn’t affect the politicians and it displays a bit of virtue signaling then it will be done. So this time taxes will go even higher, especially capital taxes and IHT, because MPs can fiddle the properties to their best advantage. Alcohol duty will be enormous because we buy all the booze even an MP can drink and it will be another tool in reforming the NHS by reforming us to not get ill. They don’t give a monkeys about inflation because we buy everything they want via “expenses”. And TTK in true socialist style has his unique pension.
Para 6 of the DT piece:
If the Treasury is putting this about now (given that the paper dates from last December) it suggests that the officials there have decided that Reeves doesn’t know her doubtless callipygian fundament from her definitely pointy elbow.
@ Grist
A rule of thumb when trying to predict the budget is that politicians will fuck it up.
Explanation for me, please. Borrowing is in government money. Where does the underlying value come from? Goods & services are the only things in the economy. They’re already spoken for in the present.
Governments love inflation. It allows them to spend more (at least in a nominal sense). It pushes people into higer tax brackets without the icky process of raising taxes. It doesn’t hurt that their salary is indexed to inflation.
The trick is to be able to do this without rousing the pedantry, which could cause them to lose their heads, metaphorically.
The Chancellor’s plan is pure evil. The people who will bear the burden haven’t just not voted for it, they haven’t even been born yet.
@decnine
The people who will bear the burden haven’t just not voted for it, they haven’t even been born yet.
If they accept the obligation. That’s not a given. Why should one accept responsibility for debts run up by ones grandparents for ones grandparent’s benefit. Would you?
@ bis
Because countries that default on their debts find it more difficult and much more expensive next time they want to borrow money
@john
Isn’t most of government debt internal? But in any case, government being unable to borrow is something I would dearly like to achieve. And the country having a reputation for defaulting on it’s foreign debt would be an excellent way to achieve it. Likewise on its internal debt. People who have been stupid enough to lend to the government should be punished severely. Government, like all of us, should learn to live within its means.
Best of course would be to get rid of government money.
BiS
Back to real gold and real silver coinage then??
@Boganboy
Not necessarily. The wealth of the country is the value created in commerce. Money is only a token of value to facilitate that commerce. Since we’re increasingly moving towards digital tokens, digital tokens would seem to be the answer. Money should be valued by the quantity of goods & services it is exchangeable for. As of course, effectively, it is.
That’s why I asked the question, where does the value come from? Government borrowing means government spending. Spending buys goods & services. Since the quantity of goods & services at any one time is fixed, government borrowing must end up as an indiscriminate tax, the proceeds to be given to government’s favoured beneficiaries. The lender may benefit. But to everybody else’s expense.
Spain, of course, is the result of using gold & silver as tokens of value in commerce. A poverty stricken land of aristocrats & peasants.
It hasn’t really changed. The majority of people here think the way to wealth is rent seeking. You try & do business her.
Why not just tax mortgages by 1%? Politically impossible, I know, unless maybe you claimed it was a tax on the wicked banks…