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Trang chủ » Borrowing Rates in UK Climb Near to Levels Seen During Last Year’s ‘Mini-Budget’ Crisis

Borrowing Rates in UK Climb Near to Levels Seen During Last Year’s ‘Mini-Budget’ Crisis

UK borrowing rates close in on last year's 'mini-budget' crisis levels

UK borrowing rates close in on last year’s ‘mini-budget’ crisis levels

The United Kingdom is facing rising borrowing costs as inflation continues to surprise on the upside. New data shows that the annual consumer price inflation rate dropped from 10.1% in March to 8.7% in April, but this is still above consensus estimates and the Bank of England’s forecast of 8.4%. Core inflation – which excludes volatile energy, food, alcohol and tobacco prices – came in at 6.8% in the 12 months to April, up from 6.2% in March. These figures have prompted traders to increase bets that interest rates will need to be hiked further in order to curtail price rises. Experts suggest that a 25 basis point hike to interest rates at the Bank of England’s June meeting is inevitable.

The Bank of England hiked interest rates for the 12th consecutive meeting earlier this month, taking the main bank rate to 4.5% as the Monetary Policy Committee reiterated its commitment to taming stubbornly high inflation. Analysts warn that even more than two full 25 basis point rate increases may follow. As a result of these hawkish market bets, U.K. government bond yields continued to rise early on Thursday, with the yield on U.K. 2-year gilt climbing to 4.42% and the 10-year yield rose to almost 4.28%. These are levels not seen since last year’s bond market crisis, triggered by former Prime Minister Liz Truss’ unfunded tax cuts.

FAQs

What is causing inflation in the UK?

There are several factors contributing to inflation in the UK, including supply chain disruptions caused by the pandemic, rising energy and food prices, and increased demand as the economy rebounds from the pandemic.

Why are rising borrowing costs a concern?

Higher borrowing costs can make it more expensive for businesses to invest and for individuals to take out loans, which can slow down economic growth. It can also lead to higher mortgage rates and borrowing costs for consumers.

What is the Bank of England doing to address inflation?

The Bank of England has been gradually raising interest rates to rein in inflation. In addition, the central bank has been tapering its quantitative easing program, which involves buying government bonds to inject money into the economy. The aim is to reduce the amount of money in circulation and, thus, curb inflation.

UK borrowing rates close in on last year's 'mini-budget' crisis levels
UK borrowing rates close in on last year’s ‘mini-budget’ crisis levels

UK borrowing rates reach levels on par with last year’s ‘mini-budget’ crisis

UK borrowing costs are rising to levels not seen since the bond market crisis that occurred during former Prime Minister Liz Truss’ disastrous mini-budget last year. According to new data released on Wednesday, the UK consumer price inflation rate fell by less than expected in April, dropping from 10.1% in March to 8.7% in April. This is still higher than consensus estimates and the Bank of England’s prediction of 8.4%. As inflation continues to persist, traders are increasing bets that interest rates will have to be hiked in order to control price rises. Core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, landed at 6.8% in the 12 months to April, up from 6.2% in March, which has added to the Bank of England’s concerns about the entrenchment of inflation. Strategists at BNP Paribas anticipate that a 25 basis point hike to interest rates in June is a “done deal”, and raised their terminal rate forecast from 4.75% to 5%. They also noted that the “sustained strength of inflation and potential concerns around second-round effects are likely to persist, prompting another 25bp hike in August.” These hawkish market bets are causing the UK government bond yields to continue to rise. The yield on the UK 2-year gilt climbed to 4.42%, and the 10-year yield rose to almost 4.28%, both levels not seen since Truss and former Finance Minister Kwasi Kwarteng’s unfunded tax cuts set forth chaos in financial markets in September and October last year.

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