UK cost of borrowing falls on Brexit vote

Yesterday in the markets UK government prices surged, with an overall rise of nearly 5%. This was despite the fact that they had already risen considerably this year ahead of the Brexit vote.

The UK government can now borrow at just 1.08% for ten years, and for under 2% for 30 years, the lowest rates in living memory.

A rating Agency has meanwhile put our debt on watch for a possible downgrade, despite this strong wish all year by the markets to value our debt more highly.

Far from the UK facing a crisis in borrowing for state purposes, or having to pay higher rates as some feared, the rates have tumbled further. As a sovereign country the UK state has full powers to raise tax and to create money to honour all debts.

When Moodys downgraded UK state debt from AAA to AA1 in 2013, the last actual downgrade, they said

“The UK’s creditworthiness remains extremely high because of the country’s significant credit strengths.” They then drew attention to European risks, highlighting “the considerable risk exposure through trade and financial linkages to a potential escalation in the Euro area sovereign debt crisis”.

Yesterday Moodys rightly stated that out of the EU the UK needs to “largely replicate” its current access to the single market. That is exactly the aim of UK policy, with many on the continent also wanting largely the same access to the UK market after exit.