UK borrowing rates near last year’s ‘mini-budget’ crisis levels

British Prime Minister Liz Truss attends a news conference in London, England, October 14, 2022.

Daniel Lyle | Reuters

LONDON – UK borrowing costs near highest level since UK financial crisis bond market crisis Triggered by former prime minister Liz Truss’ disastrous mini-budget.

New data on Wednesday showed that UK consumer price inflation fell less than expected in April.The annual consumer price index fell from 10.1% in March to 8.7% in April, much higher than market consensus and bank of englandThe forecast was 8.4%.

As inflation continues to prove stickier than governments and central banks had hoped, now almost double comparable U.S. rates and well above Europe, traders have raised bets that rates will need to rise further to curb price gains.

Most notably, core inflation (which excludes volatile energy, food, alcohol and tobacco prices) was 6.8% in the 12 months to April, up from 6.2% in March, adding to the U.K. The central bank has deep-seated concerns about inflation.

BNP Paribas strategists said in a note on Wednesday that “broad-based firming” in UK inflation data made a quarter-point rate hike “certain” at the bank’s June meeting, raising their final rate forecast from 4.75%. to 5%.

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“Continued firming in inflation and potential concerns about second-round effects are likely to persist, prompting another 25 basis point rate hike in August,” they added.

this Bank of England hikes rates for 12th consecutive meeting Earlier this month, the main bank rate was raised to 4.5% as the Monetary Policy Committee reaffirmed its commitment to taming stubbornly high inflation. The base rate helps price all kinds of mortgages and loans across the country, affecting the cost of borrowing for citizens.

This view was echoed by Cathal Kennedy, UK senior economist at RBC Capital Markets, who said the central bank’s Monetary Policy Committee could be accused of underestimating and would continue to underestimate “the second round of inflationary effects that are currently fueling domestic inflationary pressures”.

“[Wednesday’s] The CPI data may have eliminated any degree of debate surrounding a further hike in bank rates from the MPC in June (our base case for now), but markets have moved past that and are now pricing in even more than two full 25bp hikes later ,” Kennedy famously.

U.K. government bond yields continued to rise early Thursday on the back of these hawkish market bets.production in UK 2-Year Bond climbed to 4.42%, 10 years Yields rose to nearly 4.28 percent, the highest level since September and October of last year when Truss and former Treasury Secretary Kwasi Kwarteng’s unfunded tax-cut package caused turmoil in financial markets.

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