Hamish McRae references Longview Economics’ Chris Watling in his latest This is Money column on the outlook for UK government bond yields.
Chris notes that, historically, gilt yields typically offered a real return of around 2.5%-4.5%. Adding the Bank of England’s 2% inflation target would imply a nominal yield range of approximately 4.5%-6.5%.
With markets currently expecting inflation to average closer to 3% over the next decade, McRae argues that the equivalent range could instead be around 5.5%–7.5% - highlighting the risk that UK borrowing costs remain structurally higher for longer.
To read the full article, click here.