UK Gilts Surge to 5.56% as BoE's QT Draws Criticism
Yields on long-term UK government bonds, known as gilts, have surged in recent months, with 30-year gilts now offering 5.56%. This increase, up 89 basis points (bps) over the last year, is influencing mortgage rates and the current budget deficit. Meanwhile, the Bank of England's (BoE) quantitative tightening (QT) programme is drawing criticism from fund managers and economists alike.
The rise in gilt yields is significant, with 10-year gilts up 61bps to 4.47% over the same period. This increase impacts borrowing costs for both the government and consumers, as mortgage rates often follow suit. Despite this, the net cash flow benefit to taxpayers since 2012 stands at £34billion, according to the BoE.
The BoE's QT programme, which involves selling government bonds from its £558billion Asset Purchase Facility balance sheet, has been scaled back. In September, the central bank slowed the rate of sales from £100billion to £70billion over the next 12 months. However, fund managers are urging the BoE to scrap the programme entirely, citing the additional debt interest costs it imposes on the government.
The extra debt interest costs from the BoE's QT are estimated to be between £1billion and £3billion annually, with some economists, like former BoE economist Carsten Jung, putting the figure as high as £22billion a year. Critics argue that the programme is burdening UK taxpayers and worsening the country's fiscal woes. With gilt yields continuing to rise, the impact of the BoE's QT on government borrowing costs and the wider economy will be a key issue to watch in the coming months.
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