Understanding Government Borrowing

The main mechanism by which the UK government borrows money is through the issuance of bonds, specifically called gilts. These bonds act as IOUs, promising to pay back a specific amount of money on a designated date along with regular coupon payments. Foreign investors, insurance companies, and pension funds are the primary holders of these government debts, providing a stable investment that funds governmental initiatives. The debt management office within the Treasury plays a crucial role in determining how these bonds are structured and sold to manage risks associated with borrowing.