Economists: UK government bond yields may reduce private economic activity

On January 8th, Peel Hunt’s Chief Economist Kallum Pickering stated in a report that the rise in UK government bond yields could start to dampen private sector economic activity. On Wednesday, the 10-year yield reached a new high since 2008, and the 30-year yield also hit a new high for the second day in a row since the late 1990s. He stated that the UK’s partially debt-financed fiscal expansion plan should support economic growth in the medium term, but it also carries risks. ‘If the rise in bond yields leads to a reduction in private sector economic activity, it could prove to be a misguided policy choice.’ Rising bond yields will push up government borrowing costs and pose problems, potentially forcing UK Chancellor Rishi Sunak to further increase taxes or cut public spending.