UK Treasury Fails to sell Gilts
Isaac Hayes - 27 March 2009
Britain may not be able to repay the billions of pounds in debt it is amassing to rescue banks and revive the economy. For the first time since 1995, investors had been unwilling to buy the full complement of its so-called gilt-edged bonds at one of its official auctions.
Gilts are the financial instrument it sells to investors to fund public spending.
Gordon Brown might have to scale back his spending plans if future gilt sales are unsuccessful.
A warning from the Governor of the Bank of England after the failure of the auction of Gilts, The Governor said that the country could not afford to introduce another fiscal stimulus package of spending rises and tax cuts.
Traditionally Gilts are regarded as one of the safest forms of investment, Gilts are issued by the Treasury to fund Government borrowing, and Investors receive an annual rate of interest from the Government after buying gilts from the Treasury.
The Treasury holds regular auctions of gilts and they are usually oversubscribed, with investors wishing to buy more than twice as many gilts as those being sold, however, investors interest in the gilts was understood to have been the lowest in history now.
The Ship is sinking, and who will plug the hole?
David Cameron, the Tory leader, said yesterday’s failed gilt auction was a “worrying sign, because higher interest rates will increase the cost of paying for the national debt and could deter the investment we need to get us out of this recession. That would make the recession longer”.
The UK national debt is forecast to rise to more than £1 trillion by 2013
Mirek Topolanek, the Czech prime minister, who holds the presidency of the European Union, said plans by Britain and America to borrow money to fund an economic recovery plan were a “way to hell”.
Mr Brown appeared to indicate that the Government was backing away from further tax cuts and suggested that quantitative easing – effectively printing money to buy assets – was now or public spending increases, the preferred method for tackling the economic crisis.
