UK long-term borrowing costs are nearing the highest levels in more than a quarter of a century, in the wake of the Autumn budget, as the bond market braces for gilt sales totalling £297bn in 2024-25. Real yields have also taken a big leg up, following the Labour government’s decision to sharply raise borrowing.
The number of businesses that are planning to raise prices has jumped in the wake of the budget, according to the British Chambers of Commerce. The drop in UK labour productivity in Q3 (-1.8% y/y) should be a warning: without a significant improvement in the supply side of the economy, inflationary tendencies in the economy will persist. Particularly with such fiscal largesse.
Labour’s plans to bolster the supply side, are already coming up against significant obstacles, including in housebuilding. The continued imbalance between rising tenant demand and dwindling housing supply continues to push up rents, making the task of bringing inflation sustainably closer to 2% even more challenging for the BoE. Private medical insurance costs have also jumped, driven by higher demand for private healthcare services, pressure on public healthcare systems and higher levels of claims.
