UK to borrow record £385bn in bond markets to fund Covid support
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UK government fundraising in the bond markets will hit a record £385bn between April and November after it announced plans to raise £110bn more from September.
The unprecedented bond sales come as the government racks up the biggest peacetime budget deficit in hundreds of years. It has spent big to keep the economy on its feet during the coronavirus pandemic.
Chancellor Rishi Sunak last week announced a raft of measures worth up to £30bn to support jobs.
The Debt Management Office (DMO) will have issued an average of £55bn of gilts – UK bonds – in the April to August period.
It will slow down the pace of borrowing in the September to November period, issuing roughly £37bn a month.
The UK’s huge budget deficit is set to reach around £370bn this year. It will fund the job retention scheme that pays furloughed workers’ wages, grants for businesses, tax cuts, and many other programmes.
Investors snap up government bonds
Despite the ballooning pile of debt, investors have shown strong appetite for UK bonds. The government has been able to sell bonds with record low interest rates in recent months.
It has been helped massively by the Bank of England. The Bank has slashed interest rates and hoovered up bonds in the secondary market, reassuring investors.
The Treasury said it expected bond sales to fall from their record-high levels at the end of the year. “The higher volume of issuance seen so far this year due to Covid-19 is not expected to persist over the final four months of the year,” it said in a statement.
Last week the Office for Budget Responsibility (OBR) said borrowing is set to soar this year to more than £370bn. As a percentage of GDP that would be well above levels seen after the financial crisis.
It would be fuelled by a slump in tax receipts of £133bn as the economy shrinks.