Mark Bathgate

Brown’s next worry: the Gilt markets

Brown's next worry: the Gilt markets
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With inflation continuing to "surprise" on the upside, how long can the Bank of England keep justifying printing money? Now we learn that the Bank of England had printed £193.5 billion to finance government spending by the end of last week. So we are only four weeks to the next MPC meeting – but there is only £6.5 billion of new money left for them to pump out before they hit their £200 billion limit. Then we enter the scary territory I outlined in an earlier post.  And Brown is still left needing around £15 billion of Gilt sales a month to finance his fiscal debauchery.

The Gilt market was fine while Brown's appointee's to the MPC were willing to keep the printing presses rolling to the tune of £1 billion a day through the summer. But – as the chart below shows – as inflation has started to rise quickly, the pace of money-printing and Gilt purchases has had to slow.

 

The market has already started to push up the cost of borrowing for the UK. It's risen by 0.6 percent over recent weeks. Despite having official rates over half a percent lower, UK borrowing costs are now 0.7 percent higher than those of Germany. I suspect the Gilt market will be very vulnerable in coming weeks.