The yield of 10-year British government securities rose to the highest since 2008

Yields of British government securities are rising at the beginning of a new trading week: on Monday, the yield of ten-year bonds rose to 4.246% compared with 3.827% at the close of the market on September 23, which was the highest since 2008. The yield on two-year government securities rose to 4.418% from 3.911%.

The growth is supported by expectations that the Bank of England will have to sharply raise the rate, as the large tax incentives announced by the government last week will inevitably lead to a further increase in inflation.

On September 23, British Finance Minister Quasi Kwarteng announced a large-scale tax cut that will affect individuals and legal entities. It is expected that these measures will increase the budget deficit in the current financial year by more than 70 billion pounds. At the same time, the minister clarified that he does not exclude further tax breaks.

The stimulus measures of the new UK government will require an increase in the issuance of government bonds, which is one of the factors pushing down their value. 

Market participants expect the Bank of England to raise the base rate by 100 basis points at the November meeting. However, there is an opinion that the Central Bank may raise the rate until November, in an attempt to contain the fall in the national currency. An increase in interest rates may exacerbate difficulties in the economy, since the tightening of monetary policy reduces the disposable incomes of the population and leads to an increase in the cost of mortgages.