Improving investor confidence, underpinned by the ongoing rollout of Covid-19 vaccines, pushed the yield on the benchmark UK government bond to its highest level in almost two years during March.
- The DMO will sell £296 billion-worth of gilts in 2021/22
- The unemployment rate eased to 5%
- Public sector debt has increased to 97.5% of GDP
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Improving investor confidence, underpinned by the ongoing rollout of Covid-19 vaccines, pushed the yield on the benchmark UK government bond to its highest level in almost two years during March. Although the ten-year UK gilt yield ended March broadly unchanged at 0.84%, it rose as high as 0.91% during the month.
“UK interest rates have remained at an all-time low for 12 months”
The Debt Management Office (DMO) will sell £295.9 billion-worth of gilts during the 2021/22 fiscal year. Issuance will include at least £15 billion-worth of the UK’s first green bond, which will be launched in the summer, with a further launch later in the year. Index-linked gilts will make up 11.1% of issuance during the year, compared with 6.8% last year.
UK interest rates have remained at an all-time low for 12 months following the Bank of England’s (BoE’s) decision to slash its key interest rate to 0.1% in March 2020 as the Covid-19 pandemic took hold. Looking ahead, although policymakers anticipate an economic recovery in 2021, any rebound will depend on the “evolution of the pandemic”, public health measures, and the response of households, businesses, and financial markets. With regard to the issue of negative interest rates, BoE Governor Andrew Bailey said that the central bank had not made any decision, although officials recognised “the increasingly two-sided nature of the risks we face”.
Government borrowing totalled £19.1 billion during February 2021, which was £17.6 billion higher than in February 2020 and the highest February figure since records began in 1993, Borrowing for the financial year to February 2021 reached a record £278.8 billion. Public sector debt has increased to £2.13 trillion, equating to 97.5% of GDP, reflecting levels last seen in the early 1960s.
The rate of unemployment eased from 5.1% to 5% during the three months to February and the number of people on company payrolls rose for a third consecutive month during February. Nevertheless, there were 693,000 fewer people on payrolls than in February 202, and the Office for National Statistics (ONS) reported that 1.7 million people remained out of work. 19% of the business workforce remains on furlough, and the BoE believes that the Government’s decision to extend the furlough scheme until the end of September is likely to have prevented a much larger spike in job losses, although it will be “hard to avoid” an increase in unemployment as the scheme tapers off.