Britain’s long-term borrowing costs are nearing their highest level since 1998 amid fears that Rachel Reeves is failing to balance the public finances.
The yield on 30-year UK gilts – a benchmark for the cost of servicing the national debt – jumped as much as nine basis points to 5.63pc on Tuesday, close to a 27-year high.
This reflected the biggest daily increase of any major global economy, as economists warned that Britain was paying a “moron premium” on its debt – a phenomenon whereby investors charge countries more to borrow because of previous policy missteps.
Well, sorta and only just.
Real interest rates aren’t that far off other places. It’s that inflation here is higher. Which is the past policy mistake of course.
A bloke in a pub told me that if gilts go above 5% then there is a real possibility of a Greece style doom loop happening.
Confidence in the economy starts to erode and unless there are massive cuts in govt spending, the only way for interest rates is up.
Yes.
The UK had surprisingly low long term borrowing costs for a decade until 2022.
This was not because of very low inflationary expectations, but because real (inflation-linked) UK gilt yields were astonishingly negative. That on the 30 year I/L gilt bottomed at -2.6% per year in December 2021, far below eg the -0.6% per year on equivalent US Treasuries.
This was a sort of “moron discount”. Clearly this made no sense at all to any normal investor (“HMG guarantees that you will lose just over half of your real purchasing power over the next 30 years”).
It made some kind of sense only to the desperately risk-averse trustees of UK pension funds with inflation-linked sterling liabilities (“at least we won’t be ambushed by market volatility, or unexpected inflation, so our consultant tells us that we’re doing the prudent thing”). It was in effect a form of financial repression.
Real yields have climbed sharply over the last three years, around the world but particularly in the UK. That on 30 year I/L gilts is now +2.5% per year, more or less identical to the US level.
Cadet
“It made some kind of sense only to the desperately risk-averse trustees of UK pension funds with inflation-linked sterling liabilities”
Didn’t Brown change the solvency rules so that they had to buy UK government bonds?
I guess The Thief, or her Bellend acolyte are just about to do something similar to get their hands on even more of our pension assets to piss up the wall.