Borrowing costs above levels seen post-mini budget

Two-year gilt yields, a measure of the interest rate on short-term government borrowing, hit a high of – according to MarketWatch – 4.900%, just over 0.2% higher than what was hit in the days after Kwasi Kwarteng’s mini-budget last September. It’s also the highest these yields have increased to since 2008.  

It comes after stronger than expected job and pay figures heightened expectations the Bank of England would be raising interest rates. Office of National Statistics figures showed growth in average regular pay – excluding bonuses – rose to 7.2% in the first quarter of this year. With the expectation of the Covid pandemic, this is the highest level on record.  

The week has also seen members from the Bank of England’s monetary policy committee (MPC) hint interest rate increases may continue to rise to bring inflation down to its two percent target, with Jonathan Haskel’s piece in The Scotsman saying as such. He explained: “We are monitoring indicators of inflation momentum and persistence closely. 

“My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out. As difficult as our current circumstances are, embedded inflation would be worse.”

Meanwhile, Megan Greene – who was recently appointed to the MPC and will join it from next month – told the House of Commons’ treasury committee the Bank of England may have a tough time returning inflation to its two percent target, saying that while headline inflation should come down fairly quickly, she warned there was some “underlying persistence” in inflation.