Yield of British government bonds during the recession is rising today amid expectations that the Bank of England will have to raise rates sharply as a major fiscal stimulus announced by the government last week will lead to a further rise in inflation.

The interest rate on U.K. ten-year government bonds rose to 4.246% p.a. during trading, which, according to Refinitiv, is the highest since 2008.

Yield on government bonds

The yield on ten-year bonds was 4.087% compared to 3.827% at market close on September 23; the yield on two-year government bonds rose to 4.418% from 3.911%.

Last Friday, Britain’s Finance Minister Kwasi Kwarteng announced a massive tax cut that will affect individuals and businesses and increase the budget deficit this fiscal year by more than 70 billion pounds.

The stimulus measures of the new British government will require an increase in government bond issuance, which is one of the factors pushing down their prices. Rising rates could exacerbate difficulties in the economy by reducing disposable income and leading to a rise in the cost of mortgages.

Earlier we reported that investors in the U.S. are buying a record number of risk insurance contracts amid a sell-off.