Is the UK economy really doing the best since the 17th century?


9:07 am - May 31st 2012

by Duncan Weldon    


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The Government has repeatedly argued that low interest rates on government bonds are sign of market confidence. The Prime minister has recently claimed that:

Those who argue we should spend more want us to borrow more, driving up our deficit and our debt and putting our hard-won credibility and low interest rates at risk.

I argued last year (at tedious length) that this was not the case.

The current low level of yields then is a warning about weak growth prospects rather than a ringing endorsement of the government’s economic strategy.

>Since I wrote that piece the yield has dropped further. With the UK dropping into a double dip recession, is it really still the government’s contention that record low yields are sign of success rather than failure? Have things got better in the past 5 months?

As Brad DeLong notes today (quoting the Business Insider website):

  • The yield on the US 10-year bond has just fallen below 1.7%. UPDATE: the yield has just hit 1.6713%, a brand new record low.
  • In Germany, the 10-year has fallen to a new record of 1.33%.
  • UK borrowing costs have hit a record low of 1.73%.
  • In Finland, the yield on the 10-year is 1.624%. You guessed it, that’s a recordlow.
  • Sweden: The 10-year yields 1.405%. Same deal.
  • In Australia, the 10-year has dropped close to a record low of 3.061%.
  • Canadian 10-year yields at 1.87% are close to a record low.
  • Japan’s 10-year: 0.85%.
  • Swiss 10-year: 0.59%.

A quick glance at the charts in Sidney Homer’s ‘AHistory of Interest Rates’ suggests that global long-term interest rates are hitting record lows.

In fact, the only time I can see long-term government yields being lower than they are now in the UK, Germany, US, etc. is a brief dip in the yield on the debt of the Dutch Republic below 2% in the late 17th century.

The question the government should be asking itself is this – are these really the best times for the global economy since the late 17th century, or have they misread what the bond market is telling them?

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Reader comments


This isn’t rocket science – yields on UK gilts as well as it’s peers are at all time lows on a combination of concern about *world growth*, and a flight to safe haven status quality.

You could also compare yields on non-safe haven bonds….

Who, apart from you, is comparing the 21st century with the 17th? Are you suggesting that the proportion of GDP taken by the state should be at C17 levels and legislation cut back to remove state interference? Is this a puff piece for small government? If not, there is no comparison to be made.

Duncan, come along now, you know that nominal yields mean almost nothing. It is real yields that do.

And there’s nothing special about current real yields historically is there?

I love spurious historical comparisons.

Norman building regulations were obviously better than our current lot because the Tower of London is still standing.

Abolish Building Control and bring back Willie the Conk.

Trolling, (sorry!), but the article is asking for it.

5. Duncan Weldon

Tim & Tyler,

I think the whole comparison and my post is a bit silly. But that’s the point, the government’s current argument is very silly indeed.

I really think celebrating record low (nominal) yields is rather short sighted.

D

It is not the point that the “economy is doing really well”. It is that with every percent that interest rates go up, it costs the citizens of the country more an more. Quite simply we need the interest rates low. No one can afford more strain on their incomes.


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