Faisal Islam: Soaring UK borrowing costs are a problem for Rachel Reeves
Published On Jan 7, 2025, 12:26 PM
Economists are warning that the UK government is likely to miss its borrowing targets due to rising long-term interest rates, which are at their highest this century. The Office for Budget Responsibility will update its forecasts next month, with concerns about debt servicing costs taking a significant portion of public spending due to these elevated borrowing rates. The government's commitment to economic stability remains, but spending cuts are anticipated to meet fiscal rules. A recent auction of 30-year UK government debt saw rates rise, highlighting increased borrowing costs. The situation is compounded by concerns over stagnation and inflation, raising fears of 'stagflation' as the UK parallels the US in rising rates, amid uncertainties regarding global trade dynamics with President Trump's policies.
Stock Forecasts
TLT
Negative
With rising interest rates affecting borrowing costs significantly, there is an increasing likelihood that the government's fiscal health will be under scrutiny. This may lead investors to shy away from UK government bonds, and potentially impact the stock market negatively, particularly sectors sensitive to borrowing costs.
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