Big investors are betting on a fresh surge in UK borrowing costs because of mounting concerns the energy crisis will inflame inflation and trigger further Bank of England rate rises.
The darkening outlook for the £2tn gilt market comes as surging energy prices exacerbate Britain’s cost of living crisis and heighten fears of recession. Goldman Sachs on Monday said UK inflation could exceed 20 per cent by the start of 2023 if gas costs remain highly elevated.
The wagers against UK government debt have already sent short-term borrowing costs in the gilt market soaring. The two-year gilt yield, which reflects market expectations for BoE policy, touched 3 per cent on Tuesday for the first time in 14 years. It has jumped 1.2 percentage points this month in the biggest rise since at least 1992, according to Bloomberg data. Bond yields rise when prices fall.
