Ministers are using low gilt yields as a sign of coalition "credibility", yet low yields are a sign of undermined growth, explains Cormac Hollingsworth.
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Ministers are using low gilt yields as a sign of coalition “credibility”, yet low yields are a sign of undermined growth.
Following worse than expected recession numbers last week, Treasury minister Chloe Smith rejected criticism the government’s policies were failing, citing the “credibility” that the coalition had secured.
Their evidence for this credibility is the low gilt yields. And on cue, the gilt yields went to a new all-time low last Friday. But the problem is that the more the coalition undermines growth, the lower gilts go. If growth was expected to rise, gilt yields would also rise. Unfortunately the same time, lower growth means higher borrowing.
• No, Gideon, low gilt yields aren’t good news, and here’s why 16 Nov 2011
So it’s quite possible that lower gilt yields are more a sign of panic about the economy than sign of credibility about the deficit. And it turns out that every time the City raises its expectations about the total borrowing of the coalition over the course of this parliament, gilt yield falls.
Hard to believe? Take a look at our graph below:
It’s time for the media to stop swallowing the credibility line and start holding this government to account.
32 Responses to “Lower gilt yields are a sign of panic not coalition credibility”
Anonymous
Of course you are. Germany and the Nordics are seen as lower-risk than the UK, the Spanish, Portuguese, Italian, and Irish are seen by the markets as higher-risk than the UK. To say “look at the rates charged to Germany and the Nordics” in a debate about whether the lower rates charged to the UK than to the PIIGS reflects investor confidence in the UK is ridiculous.
The perception that a risk is higher leads to a rational investor requiring a higher reward to compensate for the risk. That may be in primary school syllabuses under the next Labour government. That is why Osborne spends so much time trying to con the bond markets talking about austerity when he’s running a budget deficit of the order of £100 billion, uber-Keynesian expansionary fiscal policy to soften the impact of the bursting of Brown’s bubble and bust.
Anonymous
Con? CON?
There are savage, life-destroying cuts being made under the austerity program. That he’s also increasing corporate welfare doesn’t make the fact that those cuts exist any less real.
Moreover, he’s NOT spending in ways which stimulate the economy, it’s patching up holes and aiding his buddies.
Typical double-dip denial there. It’s not at all ridiculous to see that the UK’s position isn’t so good after all by comparison with countries which have decent growth, while you maunder about how great hurting the 99% is!
Anonymous
Your comments are totally divorced from reality. Unlike certain people I have never, repeat never, been in favour of hurting the 99%. Over the last decade I have made myself unpopular by complaining about the increase in the unfair distribution of wealth since Margaret Thatcher resigned. Under New Labour the share of the nation’s wealth (excluding the totally notional value of owner-occupied houses) owned by the bottom HALF dropped by two-thirds. None of my previous comments have been party-political but this one is – New Labour made the poor poorer whereas the Tories made the poor (as well as everyone else) richer. Simple fact as published by HMRC whiole it was ruin by Gordon Brown. This is an additional reason, on top of Will Straw lying while claiming to be evidence-backed, for criticising the junk for which you appear to be a cheer-leader.
I just try to tell/point out the truth and find it disappointing when newsbots refuse to listen.
Anonymous
You’re in favor of not hurting the poor, but punishing and torturing them, I see. My bad.
“Simple fact” that you don’t understand the basics of the economy, a typical double-dip denier.
And why should I listen to party shilling? Labour did very little about many issues, but their primary crimes were of omission. Tory ones are certainly of commission.
(I’m a left winger, I wouldn’t vote for either…)
Anonymous
When did you stop beating your wife?