UK borrowing costs hover just below recent highs
UK borrowing costs hover just below recent highs
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The cost of long-term government borrowing climbed again on Friday, sitting just below the historic highs reached in recent days. The yield on 30-year gilts briefly touched 5.43%, just below the peak of Thursday’s sell-off, which was the highest point since 1998.
Meanwhile, yields on 10-year gilts reached 4.87% on Friday, slightly below their post-2008 highs seen earlier this week. Both eased back later in the morning, but remained at the elevated levels seen over the last few days. Bond yields move inversely to prices. When they rise it means it is more expensive for governments to borrow money.
The increase in the cost of servicing government debt could decrease Labour’s scope for borrowing to fund improvements to things like public services. Economists said the gilt rout has been sparked by a wider sell-off in government bonds across the globe.
They pointed to worries that US President-elect Donald Trump could introduce a tariff policy which would be inflationary for many international economies. It has also been linked to worries over rising government borrowing and the mounting threat of so-called stagflation, where inflation is high but economic growth is low.
ING senior European rates strategist Michiel Tukker said the rise “can partly be attributed to fiscal concerns, but should be framed against significantly higher rates in both the US and eurozone”. He added: “What markets may be underestimating is how higher rates also pass through to growth and inflation by tightening financial conditions.”.
