Public sector borrowing rose to £303.1 billion over the year to the end of March 2021 – £246.1 billion more than in the year to March 2020 and representing the highest level since records began in 1947.
- The BoE became the largest holder of UK gilts
- Exports to the EU recovered in February
- The UK economy grew by 0.4% in February
To view the series of market updates through April, click here
Public sector borrowing rose to £303.1 billion over the year to the end of March 2021 – £246.1 billion more than in the year to March 2020 and representing the highest level since records began in 1947. The ten-year UK gilt yield ended April largely unchanged at around 0.84% but dipped as low as 0.73% during the month.
“Optimism among UK manufacturers reached its highest level since 1973”
The BoE has overtaken overseas investors and pension funds and insurance companies to become the largest holder of UK government bonds. According to the Debt Management Office (DMO), the BoE held almost £742 billion-worth of UK gilts on its books as at the end of September 2020 – equating to 30.5% of gilts – whereas overseas investors held around £659 billion and pension funds and insurance companies held almost £693 billion. The proportion of gilts held by the BoE has swelled following its programme of quantitative easing. The BoE intends to continue its asset purchases until the end of 2021, and prices are widely expected to drop – and therefore yields to rise – when the central bank finally withdraws its support.
Having shrunk by 2.2% in January, the UK economy expanded by 0.4% during February, but was 7.8% smaller than in February 2020. UK economic output accelerated during April at its most rapid rate since November 2013, according to IHS Markit. Growth in the services sector outstripped growth in manufacturing for the first time since the beginning of the Covid-19 pandemic.
The Confederation of British Industry (CBI) reported that optimism among UK manufacturers reached its highest level since 1973 during April as companies drew encouragement from the gradual reopening of the economy. Nevertheless, many businesses are concerned about the prospect of rising costs which could put upward pressure on prices.
The rate of unemployment fell from 5% to 4.9% over the three months to February. Over the year, UK payrolls have lost 813,000 jobs. 19% of the workforce remained on furlough. The annualised rate of consumer price inflation rose from 0.4% in February to 0.7% in March, stoked by higher prices for motor fuels and clothing. Following a 42% drop in exports from the UK to the EU in January, shipments to the EU increased by 46.6% during February, although export levels remain below February 2020 levels. Imports from the EU rose by 7.3% following a decline of 29.7% in January.
A version of this and other market briefings are available to use in our newsletter builder feature. Click here
