Many Happy Returns
Soaring Gilt Yields and Strained Public Finances, with Simon French
Jan 15, 2025
Simon French, Chief Economist at Panmure Liberum and writer for The Times, dives into the surge of gilt yields and its impact on UK government finances. He discusses the potential for tax increases or spending cuts while questioning if this issue is unique to the UK. The conversation also explores the Bank of England's challenges, the undervaluation of UK stocks post-Brexit, and the essential role of stable fiscal rules for long-term economic health. In a light-hearted segment, they ponder the necessity of government fiscal rules.
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Quick takeaways
- The surge in UK gilt yields is part of a global trend driven by strong U.S. economic data and rising inflationary pressures.
- Rising borrowing costs have severely strained UK government finances, potentially limiting public service funding and prompting urgent fiscal planning discussions.
Deep dives
Surge in Gilt Yields and Economic Impact
The recent increase in UK gilt yields has raised significant concerns, with the 10-year gilt yield reaching its highest level since 2008. This surge is largely attributed to strong economic data from the U.S. indicating a robust jobs market and increased inflationary pressures, coupled with a looser UK fiscal policy in an environment of rising interest rates. The situation is exacerbated by a rapid deterioration in UK economic data, forcing investors to demand higher yields for government debt. The phenomenon of rising yields is not limited to the UK; it reflects a global trend as developed markets experience similar challenges.
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