UK Government Borrowing Worries Are Building

Government borrowing to fund extra spending on public services is forecast to be higher than expected as gilt yields (interest rates that the government pays on its debt) have increased by 21.2% to 5.34% pa as at today on 30-year gilts.

This is likely to push Rachel Reeves to the limit on her commitment to not borrow anymore to fund public spending.  This level is even higher then after Liz Truss/Kwasi Kwarteng’s doomed September 2022 Emergency Budget.

Comment

This means investors, both professional fund managers and private investors have concerns about the UK government and its ability to meet its debts.  This has similarities to 1976 budget trade/deficit when the UK had to approach the then equivalent of the International Monetary Fund (IMF) for a $3.9bn loan.  Yes, the UK needed a bailout.

This is serious, the £ is weaker and we now expect the Bank of England to hold interest rates at a higher level to underpin the £ and in turn it will still mean higher government borrowing costs.

Recession?  Getting ever more likely.  Market correction?  Building.  Market crash?  Always a risk.

That said, a similar position is happening with the US Bond market prompting fears in the US too for interest rates to be held.