Analysts believe that the UK economy is facing a new crisis, which could be as severe as the 1976 International Monetary Fund (IMF) bailout. According to Nigel Green, CEO of deVere Group, the current market situation has issued a clear warning signal that decisive action should be taken to avoid being caught in the vortex of economic turbulence

Bond yields and exchange rate pressure

At present, the yield of UK 10-year treasury bond has soared to 4.839%, the highest level since 2001. Ordinarily, the trend of sterling is usually in the same direction as the yield of treasury bond bonds, but when the two diverge, this is usually a sign of market pressure. What is even more worrying is that the pound has fallen against all major currencies, indicating a significant decrease in market confidence in the UK economy.

As the yield of treasury bond soared, the UK stock market also fell sharply, reflecting the double pressure of rising debt costs and collapsing market confidence. Former Bank of England monetary policy commissioner Martin Weale warns that the current economic situation bears similarities to the 1976 IMF crisis. At that time, due to high fiscal deficits and plummeting market confidence, Britain was forced to seek $3.9 billion in assistance from the IMF.

At present, the UK is facing a similar economic dilemma amidst a widening deficit and soaring borrowing costs. Labour Chancellor Rachel Reeves has promised to address fiscal spending through economic growth, but the market is not buying it. Nigel Green pointed out that Reeves' promise clearly failed to convince the market, and continuing to wait and see would be tantamount to gambling.

Fiscal pressure and policy challenges

The issue of fiscal deficit is at the core of the current crisis. The UK currently has a fiscal buffer of approximately £ 9.9 billion, but this number may be fully depleted before the fiscal update on March 26th. The market is skeptical about the government's ability to stabilize economic confidence, while also expressing concerns about potential fiscal tightening policies in the future. Historical experience shows that the IMF bailout in 1976 was accompanied by strict fiscal austerity measures, which had a profound impact on the economy, and this scenario may repeat itself in the present.

Nigel Green believes that the market is losing trust in the government's ability to manage debt. Especially after the market turbulence caused by Liz Truss's "mini budget" in 2022, the current crisis risk becomes more serious. The dual impact of the depreciation of the pound and the rise in borrowing costs is intensifying, which is extremely rare in history and a clear signal of a complete collapse in market confidence.

As the deficit problem becomes increasingly severe, Reeves may be forced to take a dual approach of increasing taxes and cutting spending. These policies may further dampen market sentiment and economic growth potential, and the UK economy may usher in a new round of austerity.

The impact of soaring treasury bond bond yields

The yield of UK 10-year treasury bond bonds reached 4.839%, indicating that borrowing costs are rising sharply. This trend not only puts enormous pressure on the financial situation of the UK government, but may also affect the financing capabilities of businesses and consumers. The rise in the yield of treasury bond usually means that the market is more worried about economic and credit risks, and the current yield level is close to the historical high.

The continuous rise of yield may push the market to further sell British treasury bond bonds, thus forming a vicious circle. This also indicates that the market's confidence in the stability of the UK economy is accelerating its decline.

Technical signal of GBP exchange rate decline

The comprehensive decline of the pound against major currencies is another dangerous signal. From a technical analysis perspective, the pound is currently in a downward channel and it is difficult to see effective support in the short term. This downward trend may accelerate capital outflows and further undermine market confidence.

In history, severe fluctuations in the pound exchange rate have often been accompanied by market distrust of British policies. The current technical chart shows that the pound is facing a test of key support levels, and if these support levels cannot be held, it may trigger a larger wave of selling.

summary

At present, the British economy is facing the most serious crisis since 1976. The double pressure of the soaring treasury bond bond yield and the devaluation of the pound highlights the deep concern of the market about the government's financial management ability. From a fundamental perspective, fiscal deficits and policy uncertainty are at the core of the crisis; Technically, the abnormal fluctuation of treasury bond bond yield and sterling exchange rate has sent a strong warning signal to the market.

Faced with this complex situation, whether the government can stabilize market confidence in the coming months will be the key to determining whether the UK economy can avoid a repeat of the 1976 crisis.