COTW: One Year Later

September 22, 2023COTW: One Year Later

  • On September 23, 2022, the British government announced its largest tax cuts since the early 1970s, primarily funded through borrowing, totaling over $196 billion in projected costs over the coming years. This announcement led to a sharp increase in gilt yields, further driven higher by existing worries about inflation, interest rates, and the long-term sustainability of UK government finances.
  • The Bank of England had no choice but to intervene, announcing the resumption of quantitative easing on September 28, 2022. On October 11, the Bank of England ended quantitative easing, and the tax cut plan was scrapped soon after, on October 16. Prime minister Liz Truss resigned on October 20, 2022.
  • Since then, the British gilt market has remained elevated. In particular, 2-year gilt yields have risen above their September 2022 levels due to concerns about sticky inflation and a strong UK labor market.
  • Is there a mirror scenario emerging with UK gilt markets then and U.S. bond markets now? With higher energy prices, sticky inflation and concerns about government spending, the Federal Reserve’s rate hike decision later this week will be an important one for U.S. bond markets.


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