The yield on British government bonds has zoomed up to the highest level since the Great Financial Crisis of 2008, when the world’s banking system was in meltdown.
The return on the ten-year gilt at more than 5 per cent is higher than it was after the government spending splurge during the pandemic, the enormous energy bail-out when Russia invaded Ukraine in 2022 and the infamous Liz Truss mini-Budget.
Most worrying is government complacency as war in the Gulf, which has exposed the frailty of the nation’s defences, blows up its economic and fiscal strategy.
Borrowing data for February demonstrates Labour’s vulnerability. The deficit soared to £14.3billion, outstripping City forecasts, despite buoyant tax receipts. The unexpected culprit is not the result of spending on services or national security but interest payments on the national debt.
Under pressure: Bailing out consumers is not an option available to Rachel Reeves unless she were to inaugurate a new age of austerity by wielding a meat cleaver to domestic spending
An exceptional £2billion payment was postponed from the previous month. What is more alarming is the payout on index-linked bonds (a quarter of the UK’s debt stock), which climbed in line with retail prices. This comes just as the country is facing an unexpected reappearance of higher prices because of the oil and gas shock from the Middle East, which is blowing prospects of lower money costs out of the water.
So far, the Government has shown no signs of recognising the problem it faces. Chief Secretary to the Treasury James Murray misleadingly claimed the UK is ‘better prepared’ for a more volatile world than the rest of the G7. The markets disagree, otherwise bond traders wouldn’t be dashing out of gilts.
Prime Minister Keir Starmer and Chancellor Rachel Reeves ought to be on top of all of this. All we have seen so far is Reeves lecturing petrol suppliers on price gouging.
The paradox is that the main cause of ballooning British debt was not the Truss mini-Budget, reversed by Chancellor Jeremy Hunt, but £40billion of unfunded energy subsidies, soon after the Ukraine invasion.
Bailing out consumers is not an option available to Reeves unless she were to inaugurate a new age of austerity by wielding a meat cleaver to domestic spending.
Mixed spice
Hellmann’s and Knorr, Unilever told investors recently, are among its power brands, and not for sale. That is no longer the case. Britain’s fast-moving consumer goods champion is entertaining a possible bid for all its food brands from far smaller US spices specialist McCormick.
Given that McCormick is valued at a relatively modest $14.9billion (£11.1billion) and Unilever’s food brands are worth up to £27billion, pulling off a deal will require financial acrobatics. One option might be a two-stage transaction in which Unilever spins off food and McCormick takes a big stake in the new entity, with Unilever reducing its holding over time.
If a clean disposal can be arranged, expect Unilever’s ambitious boss Fernando Fernandez to double down on fast-growing beauty, personal care, and wellness brands, perhaps through acquisition. Possible targets might include Sensodyne toothpaste-to-Centrum vitamin concern Haleon or Johnson & Johnson spin-off Kenvue.
Gold digger
The Bank of England is ditching British heroes on banknotes for native animals. No prospect of that across the water. Commander-in-Chief Trump has persuaded a federal arts panel to produce a 24-carat gold coin, embossed with his image, to commemorate the 250th birthday of the US divorce from Britain. Washington, Lincoln, Roosevelt, and Reagan et al will be turning in their graves.
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