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Financial markets

Britain's Debt Crisis: A "Poster Child" for Bad Decision-Making

Strategic Insights

— 1 min read

Britain's dire fiscal position has turned it into a magnet for bond investors' worst fears, according to Jason Borbora-Sheen, a portfolio manager at Ninety One. The UK's history of poorly managed monetary and fiscal policymaking has left it exposed to market "tantrums" and made its bond market a less attractive prospect, Borbora-Sheen warned. The combination of high inflation, high government spending, and narrow fiscal headroom has pushed up borrowing costs, with the yield on 30-year UK gilts climbing to 5.55pc, its highest level since 1997.

Key Takeaways:

  • Britain's debt has become a "poster child" for poorly managed monetary and fiscal policymaking, leaving it exposed to market "tantrums".
  • A string of poor policy choices has pushed up government debt costs, with borrowing costs climbing after Liz Truss's mini-Budget and Donald Trump's tariff onslaught.
  • The UK's bond market is unattractive due to high inflation, which rose to 3.6pc in June, and sticky inflation.
  • Britain's fiscal position has worsened due to a failure to properly contain inflation, address high public debt, and boost growth.
  • Ministers need to be prepared to make "hard choices" to improve Britain's position in international debt markets, including accepting less politically-favourable policymaking.
  • If left unchecked, the cycle of high yields, making decision-making around Budgets difficult, giving you little room to make more strident choices will continue.

Statistics:

  • The yield on 30-year UK gilts has climbed from 5.13pc at the turn of the year to 5.55pc today, its highest level since 1997.
  • Inflation in the UK rose to 3.6pc in June.
  • The UK's 10-year bond yield is 0.4pc higher than the US's, which is "actually quite meaningful" according to Jason Borbora-Sheen.
  • Ninety One manages £139.7bn in assets.
  • The Bank of England cut interest rates to 4pc earlier this month, the fifth reduction in rates since August last year.

Sources:

  • Jason Borbora-Sheen, portfolio manager at Ninety One, as quoted in the Times newspaper.
  • Ninety One, who manages £139.7bn in assets.
  • The Times newspaper, covering the UK's debt crisis and the impact of high inflation on the bond market.

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