United Kingdom Archives

Bank of England Leaves Benchmark Interest Rates on Hold

Written by IntaCapital Swiss on September 22, 2025. Posted in News & Reports. Leave a Comment

Today the BOE’s (Bank of England) nine-member MPC (Monetary Policy Committee) voted 7-2 to keep interest rates on hold at 4.00%, with the two dissenting votes of Swati Dhingra and Alan Taylor both voting for a 25-basis point cut. Experts were not surprised at the MPC holding interest rates as data released shows that prices are increasing at twice the rate predicted by the BOE. However, officials said that they still expected inflation to return to the Central Bank’s target of 2%, but remained somewhat on the fence as regards further cuts this year.

However, the Governor of the Bank of England, Andrew Bailey, was slightly more forthcoming, saying that they are not done with the cycle of cutting interest rates referring to the possibility of upcoming risks with regards to cooling in the jobs market. Whilst highlighting rising inflation and an easing labour market Governor Bailey said, “there are risks on both sides” and added “I continue to think that there will be further reductions, but I think the time and scale of those is more uncertain now than before August”.

Analysts advise that financial markets see less than a 30% chance of another rate cut this year despite any implied optimism by Governor Bailey. The MPC meets two more times this year to discuss interest rates and experts advise that a rate cut at the November meeting of the MPC is all but ruled out as they expect inflation to hit 4%, double the BOE’s target figure which is backed up by Governor Bailey also saying “The pricing at the moment which basically says ‘look, there’s going to be a period where we’re watching very carefully to see how the economy unfolds before whatever we do next in terms of movement’ is, I think is the right thing”.

The BOE has also warned that the economy is being negatively impacted due to further tax raids by the current labour government with analysts saying that the Chancellor of the Exchequer, Rachel Reeves, will probably have to find somewhere between £20 Billion to £50 Billion in either spending cuts or tax increases to maintain her fiscal plans, but according to some financial commentators, either way her credibility is diminishing at a rapid rate.

Indeed, Governor Bailey noted that higher inflation was partly to blame on government policy, and in an open letter confirming that thought, he advised inflation was almost double (3.8%) of the bank’s target and said this was due to “the increase in employer NICS (National Insurance Contributions) and pay growth in sectors with a large share of employees at or close to the NLW (National Living Wage). Officials noted that they had previously warned that the introduction of net zero packaging taxes are also pushing up prices with inflation on supermarket shelves expected to continue up to close of business 31st December 2025. All in all, analysts advise that the general feeling in the financial markets is that the benchmark interest rate will remain the same at 4.00% come the end of the year.

Borrowing Costs for the United Kingdom Highest Since 1998 As Sterling Falls 1.5%

Written by IntaCapital Swiss on September 3, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

Yesterday, 2nd September, the pound slipped a full 150 basis points against the US Dollar (came back to a 1% drop at $1.34) on the back of increasing borrowing costs on the 30-year gilt (UK Government Bond) which attained its highest level since May 1998. Thirty-year gilts rose to 5.72% and some commentators who are sympathetic towards the Labour government suggested that the coincidental global sell-off in government bonds was the main reason for the increase in yields. Indeed, the Treasury Minister, Spencer Livermore, when questioned on this subject in the House of Lords advised that gilt yields have risen in line with global peers and moves have been orderly.

In reality, experts in this arena suggest that the sell-off in long-dated UK government bonds is due more to global investors in the United Kingdom who are worried that the government is showing a lack of fiscal responsibility. Elsewhere other experts chimed in saying that as inflation has been sticky and remains the highest of the G7 countries is yet another reason for the sell-off in the 30-year issues. Equally damning, a number of economists and analysts suggest that the central issue is welfare expenditure which should it remain on what is generally agreed an unsustainable path, confidence will be further eroded resulting in more long-gilt selloffs. Other concerns for financial markets and investors alike has been the sudden rush in the number of potential new government policies reminding investors how weak the United Kingdom’s fiscal position is, which has, according to a number of financial commentators, also helped facilitate the rush to sell long-dated gilts.

However, there has been one reassuring sign in the UK government bond market, as on the day long-dated gilts borrowing cost hit the highest since 1998, the United Kingdom sold a record GBP 14 Billion of new benchmark 10-year government bonds with orders being oversubscribed to the tune of GBP 141.2 Billion. The notes which are due in October 2035 were priced according to those close to the sale at 8.25. basis points over the equivalent/applicable benchmark* and carry a coupon of 4.75%. Experts noted that the sale was ten times oversubscribed and with rates on the 10-year bond the highest since January would increase the case for buying this bond despite the fiscal uncertainty of the UK’s economy.

*Equivalent/Applicable Benchmark – This benchmark is known as SONIA (Sterling Overnight Index Average) which replaced sterling LIBOR (London Interbank Offer Rate) which uses real overnight transaction data to provide a more robust benchmark and is now the standard for new sterling denominated contracts.

The problem for the Chancellor of the Exchequer and the Labour Party is the cost of borrowing keeps increasing as can be seen by the latest GBP 14 Billion sale of 10-year bonds (the yield being the highest among the Group of 7 nations). Add to that the rise across the board in UK government bond yields, financial experts predict that the government will soon have to raise taxes to keep them within their own set of self-imposed fiscal rules. Borrowing costs are a key pillar that holds up the government’s fiscal arithmetic, and with the autumn budget looming high on the horizon the Prime Minister and the Chancellor could find themselves at the mercy of bond yields.

Will Switzerland Join the United Kingdom’s Dirty Money Task Force?

Written by IntaCapital Swiss on September 3, 2025. Posted in News & Reports. Leave a Comment

At the end of August 2023, Switzerland announced that they would be proposing new rules that would toughen anti-money laundering laws in response to claims by the United States who said that their sanction enforcements were weak. Indeed, the United States went further by saying that Switzerland had not done enough to crack down on the movement of dirty money.

To this end, Switzerland produced a proposal which included a “Federal Register” in which companies, corporations and other legal entities would find it harder for criminals and similar associates to hide assets from investigating authorities, and would have to disclose the names of any beneficial owners. However, much to the annoyance of the United States, the register would not be made public.

Previous to 2023, Switzerland had slowly been moving away from original traditions where bank secrecy was protected which at the time had made it the banking centre for the world’s rich. However, much criticism still emanated from the United States and a number of other countries as it was felt not enough had been done plus the enforcement of sanctions on Russia after the invasion of Ukraine seemed patchy at best.

Furthermore, at that time, Switzerland was also unwilling to join a multilateral task force designed to improve cooperation on seizing sanctioned Russian assets. However, as of Tuesday 19th August, it was announced that Switzerland is considering joining a British-led international task force, the IACC (International Anti-Corruption Coordination Centre), which targets “Kleptocrats*” in order to recover stolen assets.

*Kleptocrats/Kleptocracy – translated means “Rule by Thieves” and it is where corrupt government leaders systematically utilise their political power for criminal gain whereby they steal wealth and resources from their nation. This crime takes place on a massive scale which involves huge corruption that depletes a nation’s budget, hinders public services and economic development, and ultimately undermines democratic governance. Kleptocrats often hide their mass of stolen wealth in other countries which requires a transnational network of financial and legal enablers to obscure ownership and launder money, a problem that host countries together with the international community are continuing to struggle to combat.

Indeed, experts in this arena advise that sources close to officials confirm that Switzerland currently has observer status with IACC and during a visit earlier this month by the British Foreign Secretary David Lammy he discussed the possibility of the country participating further with the IACC and the possibility of becoming a full member. As a result, Switzerland is considering a number of options for future cooperation with the IACC but definite decisions have yet to be reached.

Joining the task force would enable Switzerland to share intelligence and work more closely with countries on investigations that target dirty money. The British Foreign Secretary has advised that Switzerland has been a key partner in the fight against corruption and illicit finance and further participation with the IACC would be invaluable. Since the illegal invasion of Ukraine by Russia on 24th February 2022, Britain has increased its efforts against illicit finance and has become the global leader against kleptocracy.

The Bank of England Cuts Interest Rates

Written by IntaCapital Swiss on August 11, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

On Thursday, 9th August the BOE (Bank of England) cut interest rates by 25 basis points to 4% and in the process, the MPC (Monetary Policy Committee) took borrowing costs to its lowest level since March 2023. However, this was no ordinary MPC meeting as for the first time in its 23-year history the vote was deadlocked and the committee took the unprecedented step of voting twice, with the vote finely split by 5–4 in favour of a rate cut. The decision by the MPC saw two senior voting members (Chief Economist Huw Pill and Deputy Governor Clare Lombardelli) vote against Governor Andrew Bailey, with officials being deeply divided over the direction of interest rates, with the United Kingdom not only experiencing a cooling labour market but a resurgence in inflation.

The last time the MPC cut interest rates was in May of this year and since then the opposition to interest cuts has unexpectedly grown, however as seen above the two dissenting votes for a rate cut helped win the day. The BOE is still sticking with its overall guidance informing the financial markets that rate cutting will be “gradual and careful” whilst warning of a cooling in demand for workers and an emerging slack in the economy. The Governor of the BOE Andrew Bailey reiterated previous comments by saying “it remains important that we do not cut bank rate too quickly, or by too much”. The MPC also pointed out that they expect inflation to hit 4% in September – up from the previously advised figure of 3.7%.

Elsewhere tax data suggests that since the Labour Government announced plans to increase employers’ payroll tax and the minimum wage, 185,000 jobs have been lost. Data from the BOE’s own survey of firms show a growing stagflation risk, and in the upcoming year, they expect businesses to put up their own prices by circa 3.7%. Indeed, the MPC further advised that since May of this year upside risks to the consumer price had moved slightly higher with particular emphasis towards rising food bills, and they went on to say that the outlook for employment growth over the next 12 months has deteriorated and the expectations on wage growth remains at 3.6% which is somewhat sticky and has become a bit of a hot potato.

Governor Bailey at a press conference once again insisted that interest rates are on a downward path and that the current inflation figure will only be temporary, but he was somewhat evasive and wary about when they will announce the next interest rate cut. Money market traders have reduced their bets on a November cut to under 50%, especially as Governor Bailey went on to say, “there is, however, genuine uncertainty now about the course of interest rates”. Experts suggest that the BOE is very worried that inflation may well persist as the current headline figure is way above the benchmark target, and there is the possibility that policymakers are considering ending the easing cycle.

Analysts suggest that there are interesting times ahead at the BOE especially as the world waits and sees the effect of President Trump’s tariffs on world trade and the global economy. Furthermore, Thursday’s interest rate cut was the most divisive under the five-year stewardship of Governor Bailey, plus no Deputy Governor has ever voted against Governor Bailey, that is until Claire Lombardelli’s dissenting vote. Such dissent from the Deputy Governor is highly unusual and highlights the deep fractures within the MPC as to how to tackle the resurgence in the current price pressures. The labour party happily points out that under their government borrowing costs have been coming down, but those rates dictated by the financial markets have been going in the opposite direction with the 30-year gilt yield prior to the BOE’s interest rate cut standing at 5.43%. After the BOE’s announcement last Thursday the 30-year gilt yield stood at 5.32%. Some commentators have made a somewhat damning point in that perhaps within the Bank of England there are those who are perhaps politically motivated and not so independent as we are led to believe.

Some experts suggest that the MPC in lowering the borrowing rate is in direct conflict with their prediction of inflation increasing and this despite the fact the United Kingdom has the highest inflation rate within the G7. Furthermore, analysts point out that since April, the pound has dropped 1.5% and 2.5% against the US Dollar and the Euro respectively leaving the pound open to further falls whilst pushing inflation up through higher import prices.

The current disagreements will also impact policymakers and their decisions as to how to tackle the current uplift in inflation and with the Governor and Deputy Governor seemingly split on monetary policy, Governor Bailey’s vote will become more and more important as the United Kingdom approaches the end of the year.

Bank of England Holds Interest Rate Steady

Written by IntaCapital Swiss on June 23, 2025. Posted in News & Reports. Leave a Comment

On Thursday 19th June the BOE (Bank of England) held benchmark interest rates steady at 4.25% – 4.00% with the MPC (Monetary Policy Committee) voting 6 – 3 leaving rates on course for a potential cut at the next meeting on August 7th, 2025. Two external members Alan Taylor and Swati Dhingra plus the Deputy Governor David Ramsden preferred a quarter point reduction, however experts had already predicted a 6 to 3 vote in favour of holding rates steady. The money markets taking its lead from a more dovish vote by the MPC increased the odds on further interest rate cuts, priced in a further two ¼ of 1% cuts by June 2026. Interestingly, even before today’s announcement the financial markets had already priced in an 80% chance of a ¼% cut in August.

Governor Bailey warned that the world is in a highly unpredictable space with concerns that the current conflict between Iran (a major oil producer) and Israel could affect energy costs by sending them higher, thus negatively impacting prices by driving them higher. The BOE confirmed it is sensitive to events in the Middle East and their impact on oil prices where prices could be driven higher, which could then negatively impact the UK economy. The BOE noted that since their last meeting in May gas prices are up by 11% and oil had risen by 26%, however service inflation* an important indicator for the BOE fell in April from 5.3% to 4.7%

*Service Inflation – is a component of core inflation (excludes energy and food services) and reflects the rate at which the prices of services are increasing or decreasing in an economy. It helps economists, financial experts, and policymakers understand the underlying persistent inflationary pressures in an economy. Energy and food prices are excluded and can be volatile and subject to short-term fluctuations but are included in headline inflation.

Officials from the BOE noted that inflation is expected to edge higher in the coming months peaking at 3.7% in September from 3.4% in April. Experts have noted that the September figure is higher than the BOE’s benchmark target figure of 2%, however officials suggest that this figure will slowly come down with Chairman Andrew Bailey confirming “rates are on a downward path”. Officials also confirmed that they expect the economy to grow by 0.25% in Q2 of this year and statistics released by the ONS (Office for National Statistics) showed food prices had risen by 4.4% in the year to May2025, and overall goods prices rose by 2.0% the most since November 2023.

Analysis issued by the BOE suggest that officials and policymakers are feeling less pessimistic regarding the impact of Donald Trump’s tariffs on the UK and global economy, a change of opinion from their more pessimistic outlook last month. However, they continue to stress whilst their outlook has changed, uncertainty over trade could still negatively impact the UK economy. The MPC whilst still trying to balance a cooling economy against elevated inflation is finding their work is being complicated by the Israel/Iran conflict and the trade policies of President Donald Trump.

Bank of England Cuts Interest Rates

Written by IntaCapital Swiss on May 8, 2025. Posted in News & Reports. Leave a Comment

Today the BOE (Bank of England) announced a cut in interest rates with the MPC (Monetary Policy Committee) advising a reduction of 0.25% to 4.5%. The committee was divided, with five members voting for a ¼% cut, two members for a ½% cut, and the remaining two members voting to hold rates. Markets were surprised by the cautious approach, with President Trump’s tariff war weighing heavily on the outlook of the United Kingdom’s growth.

Caution was the watchword coming out of the MPC despite the divided votes saying that monetary policy easing should be “gradual and careful” in the light of volatility in the global economy which has been the result of President Trump’s wide-ranging tariffs. Forecasts by the BOE suggest that inflation will peak in Q3 2025 at 3.5% with growth being anticipated at 1% by close of business 31st December 2025, increasing to 1.25% for 2026 and then unchanged for 2027.

Following the decision by the MPC, Governor Andrew Bailey said in a statement “inflationary pressures have continued to ease so we have been able to cut interest rates today”. He went on to say “The past few weeks have shown how unpredictable the global economy can be. That is why we need to stick to a gradual and careful approach”. Traders had anticipated a bigger cut and were surprised by the decision, with one expert saying that this clearly is a hawkish cut.

The day before the MPC announcement was made, President Donald Trump revealed that the United States was about to make a trade deal with a major country, (later reported as the UK), and many commentators were then suggesting this would nudge the Bank of England into making a larger cut than they did. However, the BOE has made it crystal clear that they feel the greatest threat to the UK’s economy is from the global impact of U.S. tariffs. The BOE has given itself room to manoeuvre by saying “it will remain sensitive to heightened unpredictability in the economic environment and will continue to update its assessments of risks”.

As always, President Donald Trump is in the frame when it comes to important economic decisions, especially when it comes to Central Banks’ monetary policies on interest rates. As such, the BOE appears completely divided over interest rate decisions and which way monetary policy will go. Several experts have surmised that the BOE have been forced into being reactive rather than proactive or forward looking. Markets are suggesting another rate cut in August 2025, but for now the outlook remains uncertain.

Donald Trump Tariffs Pushes India and Great Britain into a Landmark Trade Agreement

Written by IntaCapital Swiss on May 7, 2025. Posted in News & Reports. Leave a Comment

In the days since President Trump announced he would be hitting all imports into the United States, countries around the world have been talking with each other regarding free trade deals. As a result of the fallout over Trump’s tariffs, India and Great Britain yesterday sealed a historic multi-billion-pound trade deal. The trade deal will significantly slash Indian tariffs on key products such as medical devices, whisky and cosmetics and will lock in reductions on 90% of tariff lines on UK exports to India, with 85% of these exports becoming fully tariff-free within 10 years.

Prime Minister Keir Starmer announced that this is the United Kingdom’s biggest agreement since Brexit, whilst his counterpart Prime Minister Narendra Modi said this is the first deal of its kind with a European economy. This agreement is the culmination of three years of talks under four British prime ministers and was certainly helped over the line by President Trump and his protectionist policies. Experts advise that the two prime ministers are both seeking to to build barriers or insulate them against the Trump tariffs, whilst at the same time looking for favourable deals with the United States.

Experts suggest that this agreement between India and the UK has huge potential for the future, especially in the alcohol sector where, for example, data released shows both Diageo and Pernod enjoy 12% of their revenue from India. The trade deal agreement shows that tariffs on whisky and gin will be reduced by 50% to 75% before being reduced to 40% by the 10th year, whilst in the automotive sector, tariffs will be reduced to 10% – under quota – from 100% over that period. Interestingly, part of the deal exempts Indian nationals working for less than three years in the UK from insurance payments.

Members of the main opposition conservative party immediately jumped on the national insurance agreement, saying the Prime Minister once again has put British workers last, having hiked national insurance payments on them whilst exempting Indian nationals. One member of the conservative party was heard to say, “Every time Labour negotiates, Britain loses”. Labour countered by saying that the tax break goes both ways and there would be no double taxation on Britons temporarily working in India, adding that this was just an extension of current agreements already in place with other countries.

India on the other hand, according to individuals close to the negotiations, has won reductions on circa 99% of tariff lines for goods exported to the United Kingdom. India according to the same individuals has also secured an agreement for access to services including Information Technology and have also secured recourse against those exports impacted by Europe’s carbon emission rules. Both India and the UK still have to iron out legalities before the agreement can be ratified through domestic ratification processes. Experts suggest the trade pact will take up to 12 months for the deal to come into effect.

According to analysts, the India/UK trade deal should in the long run increase bilateral trade by £25.5 Billion, UK GDP by £4.8 Billion and wages by £2.2 Billion. Furthermore, businesses in the United Kingdom will be able to enjoy a competitive edge over their international competition when entering the Indian market which is forecasted to be the world’s third largest by 2028. Analysts also suggest that, based on figures from 2022, India will be cutting tariffs by £400 Million when the deal comes into force which after 10 years will more than double to circa £900 Million. Whilst this is good news all round for importers and exporters alike, the reality is that the United Kingdom has to secure a decent trade deal with Donald Trump and if not, they will have to secure a similar pact with the EU (European Union) and other countries. However, the spectre of tariffs may push countries into trade deals that before they would not have contemplated.

Bank of England Holds Interest Rates Steady

Written by IntaCapital Swiss on March 21, 2025. Posted in News & Reports. Leave a Comment

On Thursday, 20th March 2025 the BOE (Bank of England) held interest rates steady at 4.50%. Officials from Threadneedle Street warned that the bank was grappling with major uncertainties over the British and world economies and warned financial markets not to assume there would be interest rate cuts over the next few meetings. The MPC (Monetary Policy Committee) voted 8–1 to leave interest rates unchanged apart from Swati Dhingra (external member) who voted for a 25 basis point cut.

The vote of 8–1 by the MPC indicates a more hawkish stance, with both experts and analysts expecting a 7–2 vote, though most agreed that holding interest rates this time round was a shoe-in. Indeed, in the run-up to Thursday’s rate decision, some of the most dovish members of the MPC had already adopted a more cautious tone regarding interest rates.

A number of experts agreed that Thursday’s decision to keep interest rates on hold was strengthened by the banks’ increased uncertainty over domestic issues, plus April’s increases in energy and labour costs. In the bond markets, 10-year gilts rose as traders pulled back on bets on future rate cuts whilst the pound remained weaker against the US Dollar at circa $1.297.

The Bank of England is the latest central bank to adopt a more hawkish and wary tone in the face of President Donald Trump’s tariffs attacks on the United States’ closest allies. Indeed, the Governor of the Bank of England said, “Officials are having to react to fast-moving global events, with effects on inflation and growth far from certain”. He went on to say, “We have to be quite careful how we calibrate our response because we are still seeing a very gradual fall in inflation”. He also added that BOE officials were still waiting to see what the effects are of any tit-for-tat skirmishes on the tariff front.

The aura of uncertainty pervading from Threadneedle Street suggests that interest rates will remain static for the next two meetings, especially as experts suggest pay growth will be a key ingredient to future rate decisions by the MPC. Data produced on Thursday morning showed wage growth holding at a nine month high accompanied by a resilient labour market. However, minutes released by the MPC showed members as being not too worried about the strong pay data, though the minutes added that members would keep a close eye on wage settlements. However, whatever financial, employment, wages and inflation data is forthcoming, the spectre of Donald Trump’s tariffs and economic policies will loom large over many central banks’ policy decisions.

The United Kingdom Becomes Europe’s Top Destination for Investment

Written by IntaCapital Swiss on January 27, 2025. Posted in News & Reports. Leave a Comment

Despite much rancour regarding the Chancellor of the Exchequer’s budget on 30^th October 2024, PWC’s annual CEO survey has shown that the United Kingdom has leapfrogged Germany to become Europe’s top investment spot, and has claimed second spot behind the United States in the global rankings. Indeed, the survey of circa 5,000 chief executive officers put the United Kingdom ahead of China, Germany, and India, with such news no doubt coming as a relief to the somewhat embattled chancellor Rachael Reeves, especially after recent turmoil in the UK government bond market.

The Chancellor has been quoted as saying “These latest results show global CEO’s are backing Britain as the UK is one of the most attractive destinations for international investment, and it’s this investment that will help economic growth and improve living standards across the UK”. The senior partner of PwC UK Marco Amitrano was also quoted as saying “ “a vote of confidence in the UK as a place for business and investment”. The cabinet is united in the fact that the government has a safe and secure majority which, unlike some of the larger EU economies that face both economic and political instability, will encourage investors to use the United Kingdom as a safe haven for investments.

However, experts suggest that this labour government should not become complacent, as putting the United Kingdom back at front and centre of the global stage requires a realisable path towards growth and a government that has an approach that is consistent towards investment and business. Currently, the Chancellor is attending the Davos summit in Switzerland where she will highlight the United Kingdom as a safe and politically stable investment partner. She will be emboldened by the fact that first data released by the IMF (International Monetary Fund) last week upgraded its forecast growth in the United Kingdom from 1.5% to 1.6%, and second figures released at the end of last week show lower than expected inflation figures paving the way for a rate reduction by the Bank of England.

Recent data released by the ONS (Office of National Statistics) showed inflation for December 2024 slowing to 2.5% down from the November figure of 2.6% a surprise for many analysts who had predicted inflation either holding steady or rising to 2.7%. The biggest drivers in December’s inflation figures were the easing of tobacco costs and the easing restaurant and hotel costs, and whilst still rising, they reflect the slowest pace since July 2021. Experts now suggest these latest inflation figures have opened the way to cut interest rates by 25 basis points to 4.75% in February. However, despite December’s drop in inflation, experts have warned it could rise again in the coming months fuelled by rising energy bills. Still, the Chancellor will be buoyed by the fact that inflation is down, rates could well come down, the United Kingdom is top of the investment tree in Europe and second in the world, a turnaround from the financial machinations of last week.

Sterling Slides as UK Government Bonds in Turmoil

Written by IntaCapital Swiss on January 15, 2025. Posted in News & Reports. Leave a Comment

In the second week of January 2025, we have seen the sterling fall, whilst the United Kingdom’s long-term borrowing costs have gone through the roof. This is a rare occurrence, and such a combination is a signal from the financial markets that investors have lost faith in today’s labour government and their ability to control inflation and to keep national debt in check. Traders have been dumping Gilts (UK government bonds/UK debt) and indeed, some experts are drawing comparisons with the Liz Truss min-budget (a bit of a nightmare) in 2022, or even the debt crisis back in the 1970’s when the then labour government had to ask the IMF (International Monetary Fund) for a bailout*.

*The 1976 debt crisis had the United Kingdom applying to the IMF for USD3.9 Billion after large trade and budget deficits plunged the nation into crisis. In return for the loan, the then Labour Government agreed to IMF imposed austerity programmes. Today, the United Kingdom is running twin deficits.

However, Chancellor of the Exchequer Rachel Reeves issue a statement on the evening of Wednesday 8^th January saying she has “an iron grip on the public finance”, which was a rare occurrence being the second statement on the same day. Strong words from the Chancellor, but on the following Thursday morning the interest rate/yield on the benchmark 10 year Gilts rose by 12 basis points to 4.921%, a figure not seen since 2008 which was during the Global Financial Crisis. The long-dated Gilt 30 years has also risen by 10 basis points to 5.474%, reflecting a 28 year high.

Usually a currency would be supported by higher yields, but on 9^th January 2025 the sterling sunk below USD1.23, having kicked off the new year above USD1.25: its lowest level since last November 2023. Some financial experts have espoused the theory that the government will have to revert to austerity in order to reassure financial markets while other experts have blamed the current crisis on lack of faith in the Chancellor’s promise to fund huge increases in spending with exceptionally quick growth. The backlash from the markets also follows weeks of bad data and economic news since labour’s general election victory in July 2024. Growth has stalled, GDP flatlined three months to September and business sentiment has soured on the back of the Chancellors increase in taxes.

Despite the chancellor’s reassurances of her “iron grip” the rise in gilt yields/interest rates now means the governments cost of borrowing has radically increased by GDP9 Billion, which has just about wiped out the GDP9.9 Billion spending buffer that the chancellor has built into tax rises. The fact that the Chancellor left the smallest of margin of buffers against her to pay for day-to-day spending out of taxes, her credibility is now at stake. Some analysts advise that “Trading Signals’ suggest that markets remain highly sensitive to any policy decision from the government (and the Bank of England), which leaves the Chancellor in a predicament as her Spring forecast will take place on Wednesday 26^th March 2025. She can only hope that the financial markets have regained some respect for her and the government by then.

Tag: United Kingdom