Thursday, June 1, 2023

British debt shoots up to maximums since October due to persistent inflation

the persistent inflation and the prospect of further rises in interest rates have triggered the british debt to levels not seen since last October, when the drastic tax cut ordered by former Prime Minister Liz Truss unleashed a crisis of confidence in the economy of the United Kingdom.

The performance of the british bond The ten-year bond reached 4,379% this Thursday, its highest level since mid-October, while the two-year bond climbed to 4,540%, its highest level since the end of September.

The National Statistics Office (ONS) announced on Wednesday a reduction in year-on-year inflation in April to 8.7%, from 10.1% in March, marking the first drop below 10% since August last year.

However, core inflation, a metric that excludes seasonal and volatile elements, increased from 6.2% to 6.8%, the highest since the early 1990s, and food inflation stood at 19.1%, compared to 19.2% in March, near the peak in the last 45 years.

“The strong rise in core inflation has led the markets to anticipate rate hikes of 100 basis points (up to 5.5%, from the current 4.5%) by the bank of englandwhich has driven debt yields to their highest levels since October of last year,” said CMC Markets analyst Michael Hewson.

“Yields on (UK) debt are approaching levels last seen in September and October. (…) During that episode, there was a backup buyer in the form of the bank of england“He said today in a statement. Sonja LaudDirector of Investments at Legal & General, one of the UK’s leading asset managers.

“On this occasion, we do not expect the Bank of England to reactivate its purchase program,” said the board, which stressed at the same time that during the crisis unleashed by the Truss measures there were extensive “market failures” that now they don’t register, like a crash of the pound sterling.

The British currency, which in September fell below US$1.10 US, was exchanged today for US$1.2324 and €1.1493.


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