UK Financial Markets Face Significant Turmoil

The UK financial markets are facing turmoil as government bond yields reach historic highs and the pound sterling falls to a 14-month low against the US dollar, currently trading at $1.21. This instability is driven by concerns over inflation, public finances, and stagnant economic growth, with the 10-year gilt yield rising to 4.9%, its highest since 2008. The UK economy showed no growth in the third quarter of 2024, and forecasts for the upcoming year remain bleak, prompting investor apprehension about government spending and a national debt that has surged to approximately £2.8 trillion. Additionally, the Bank of England's past interest rate hikes, aimed at controlling inflation, have created higher borrowing costs that are unsettling households and businesses. With investors increasingly favoring the US dollar as a safer asset, the pressure on the pound is expected to continue. Officials maintain that the gilt markets are stable, despite fears reminiscent of the 2022 crisis triggered by a controversial mini-budget.