The British Pound is now worth less than a US Dollar and twenty cents, down nearly 10% in two months. During the same time, the yield on thirty-year Gilts is up more than one percent at 5.45%. That’s the highest level since 1998. What this all means remains to be seen, and the markets have been known to change their minds, but it’s not like the writing hasn’t been on the wall for quite some time.
The Bank of England created £875 billion of new money in the thirteen years following the 2008 financial crash. Fortunately, and thanks to the miracles of quantitative easing, interest rates remained low, which made servicing the debt affordable. However, that is no longer the case, and refinancing huge amounts of debt at interest rates that are many percent higher is not good.
Then there is the matter of servicing the cost of the other £2 trillion the UK government has borrowed and will continue to borrow until we resolve a crisis that will only ever get bigger. Current projections for our total debt to GDP ratio is 270% in the next fifty years, up from 98% currently. What that means, also remains to be seen, but apparently the markets have finally woken up to that which appears abundantly clear.
Our only hope seems to be that the rumours are true. Elon has instructed a Cayman based hedge fund to short the UK gilt markets in an effort to dislodge the Labour government, bring back Liz Truss as prime minister, lower taxes, buy Liverpool football club, get Rodri, Bellingham and Haaland for ten billion quid each, but not Mbappé, because his wages would destroy the team.
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