UK borrowing rates slump to record low

HM TreasuryWhile French eurozone turmoil continues - its borrowing costs have risen sharply - UK borrowing costs continue to slip. 10-year gilt yields - the base rate for UK government borrowing - has tumbled to 2.13%. Compare that rate to yields in Italy (7%). This is borrowing at its cheapest level since 1898 - when Marconi conducted his first test radio broadcast and Queen Victoria sat on the throne.

Keep on printing?

It's a mixed legacy. International investors continue to think the UK is unlikely to default on its IOUs. But the flip side is that they may not think UK growth prospects are all that strong (think Japan), though George Osborne would disagree.

Witness the Bank of England's growth forecast downgrade in its latest quarterly inflation report, which could see another bout of quantative easing. Many investors are not convinced that the apparent credibility of cheap 10-year money necessarily feeds though into more private (and much more productive for the economy) investment.

But they also know the Bank of England has the power to keep printing, should prospects deteriorate.

Hard done by middle classes

10-year cash at 2% and inflation at 5%? That's hard on the so-called Squeezed Middle. And if we do get another bout of QE, it will pile the inflation pressure on further.

So the upside to our current 'safe haven' status is also limited. What's needed is demand. How about, then, in this unsteady interim, a new social housing spree for starters? Public money borrowed at super-low rates being spent on an asset that would supply steady, strong margins.

But it won't happen. Capital spending is locked down for a good few years yet.
Read Full Story