UK Debt Rate Increases As The Pound Loses Its Strength
On account of a weak pound against the USD and other currencies, the rate on UK debt instruments increased. Some of the other factors which have made the investors worried are the borrowing splurge and the taxation set by the government.
UK gilt 30-year yield increased by six basis points and touched the 5.048% level. In comparison with the past debt rates of the UK, levels like these were last seen in 1998! So based on that perspective, the current debt rate of the UK has broken 24 years record!
In simple words, investors are now demanding a much higher return for buying government debt. Whenever the economic outlook of a country deteriorates, the interest rate on its debt usually jumps higher, and that's the case with the UK as well!
Pound Is At 37 Year Low Against US Dollar
Currently, the Pound Sterling value is at a historic 37-year low against the US Dollar and clearly shows the weakness of the United Kingdom as a country. Although the Pound has gained some traction against the USD in the past few days, it is still at historic lows!
Just this year, the Pound has lost 20% against the US dollar and almost 6% against the Euro (EUR).
Looking ahead, experts believe that the Bank of England will continue to raise interest rates to combat inflation in the country. If we talk about inflation, it is also at 40 years historic high and is around the 9.9% range.
Last week, a package worth 45 billion was signed, which involves tax cuts at various levels such as income tax, corporate tax, and even insurance rates.
On the other hand, the government didn't announce any plans to cut public spending. So in simple words, the government will be earning less money from taxes but will be spending a higher amount on public spending. This simply means that it will have to borrow even more money!