Britain has been in a financial turmoil for days. The sell-off in British government bonds has brought the 10-year UK government bond to its highest level since 2008 at 4.8%, and at the same time the pound has slipped to its lowest level in a year. While usually in cases of rising yields the currency should appreciate. A feeling therefore that in Britain there is an investor flight.
Yields on 10-year government bonds have in fact soared to their highest levels since the 2008 crisis . Even beyond the levels reached under the Truss government – while 30-year bonds are at their highest level since 1998. The pound is in free fall and is at its lowest levels against the dollar for 14 months.
Usually when interest rates rise, the currency strengthens. But that is not what is happening in Britain. What we are witnessing is instead a sort of vote of no confidence by the financial markets in the Starmer government.
Recent days have seen a sharp increase in long-term debt prices in the UK and a decline in the value of the pound, an unusual and unsettling combination that suggests a decline in investor confidence in the the capacity of government departments to regulate the rate of inflation and the national debt.
Rumour has it that Britain has entered a spiral of “stagflation”. That is, economic stagnation accompanied by high inflation, the worst possible scenario.
A survey of businesses published yesterday by the Bank of England showed that firms plan to raise prices next year by 4%. In addition to economic indicators, there are also external “political” factors in the financial storm. “ According to Financial Times, Elon Musk is not just directly disparaging the British Labour Party. But he had additional conversations on how to depose Starmer before the end of the legislature .”
Chancellor of the Exchequer Rachel Reeves presented a budget package last October based on tax increases worth the equivalent of €50 billion. Ostensibly to plug a £22 billion hole left by Conservative governments.
Britain’s economic growth – which had been the strongest of the G7 . Under the Conservatives in the first half of 2024 – has stalled at zero.https://youtu.be/12Xg5s54U4E?si=IDhpu0FlEYZLY9vy