The interest rate on UK government debt has risen above the 2% mark for the first time since last spring.
The jump in yields on the benchmark 10-year gilt have risen from just over 1.8% to 2% since the start of 2013, reflecting optimism about Britain’s growth prospects. Although the promise of stronger growth will be welcomed by the Chancellor, the concurrent increase in Britain’s borrowing costs will not.
George Osborne frequently cited Britain’s record low borrowing rates as proof of the country’s solvency and investors’ faith in its debt. However, it has also emerged that the spread between Britain and Germany’s government debt yields – another key metric he referred to in previous House of Commons statements – has risen (in Germany’s favour) to the highest level since mid-2011.
At the time of the 2011 Autumn Statement Britain was able to borrow more cheaply than Germany. Today British 10-year bonds have an interest rate 0.554% higher than on German bunds.