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Squeezed: the Government increasingly depends on bond markets to finance debt
The amount of UK debt held by the private sector is on track to rise at a record pace, a think tank has said.
The Institute for Fiscal Studies (IFS) warned that this increased the risk of foreign investors asking Britain for bailout in the event of a crisis.
The Government is increasingly reliant on bond markets to finance borrowing, much of which has been absorbed in recent years by the Bank of England.
Now the Bank is unwinding its £875bn quantitative easing (QE) programme, meaning it is selling the UK bonds – known as gilts – it holds.
At the same time, the Treasury is issuing more new bonds and debt levels remain double what they were before the pandemic, according to the IFS.
“To finance our high borrowing in the coming years, we are now asking the private sector to absorb historically high volumes of debt,” the IFS said in a pre-budget report.
“High bond issuance, exacerbated by quantitative tightening, is forecast to result in the largest increase in private sector holdings on record of 7.9 per cent of national income in 2024-25.”
Carl Emmerson, deputy director of the IFS, said: “To the extent that these are international investors buying UK bonds, we have to worry about what would happen if there were a UK-specific shock – those international investors clearly have other options. options about who they could lend to. to.’