City Of London
Financial Repression May Become Necessary to Contain UK Yields
- UK may direct domestic private savers and banks to buy gilts
- Policy a risk for equities as funds diverted to bonds
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The sharp rise in gilt yields and fall in sterling after today’s mini-budget may force the UK government to direct domestic savers and banks to own more government debt.
It’s not overly alarmist to say the UK is in some trouble - especially with the pound falling more than 3% against the dollar so far today. Already trying to finance one of the world’s largest twin (budget + current) deficits, while growth is in structural decline and inflation is surging, the UK has to contend with its new government today announcing a fiscal package that will massively ramp up spending through a combination of energy subsidies and tax cuts.