US bond market jitters spark UK economy recession warning
The UK economy could be plunged into a recession an “order of magnitude” greater than recent financial crises if America’s borrowing costs continue to climb over the rest of the year, a group of leading City analysts have warned. The US was forced to pay the highest interest rate on its long-dated bonds for a [...]
A group of leading UK City analysts have warned that the US's rising borrowing costs could plunge the UK economy into a recession "of a magnitude" greater than recent financial crises. The US recently paid the highest interest rate on its long-dated bonds for a quarter of a century, due to concerns over the country's deficit and inflation.
Investors demanded yields as high as 5.22% at a $25bn auction of 30-year Treasuries, the highest borrowing cost rate since August 2001. This has reignited fears of a US debt crisis, with any sharp repricing of US Treasuries likely to have repercussions for the global economy, particularly for nations with high debt-to-GDP ratios like the UK.
Roger Lee, head of equity strategy at Cavendish, said that higher mortgages and corporate debt interest could stall the already stagnant UK economy. The UK's debt pile has swelled to $40 trillion, roughly double what it was a decade ago. The country's deficit has also skyrocketed under the Trump administration, with tax cuts failing to recoup through reduced spending.
If US bond auctions require higher yields, there's a possibility the system could become clogged, affecting all financial markets, not just the UK gilt crisis. The UK government will need to exercise "even more caution" at its upcoming Budget, with Chancellor John Healey facing pressure to meet "the letter and the spirit of the 'golden rules'."
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