According to the Treasury, the government’s infrastructure plan “is only possible because of the Government’s hard-won fiscal credibility, which the Government is now passing on to support the UK economy.”
Or, as the Chancellor put it:
The credibility the Government has earned through tackling the deficit is already helping millions of British families and businesses through keeping down the cost of borrowing.
Now, as Duncan has pointed out, there is another possible reason for the low interest rates for UK government debt: markets aren’t confident they’ll get a better return from investing in the private sector.
If rates are low because the markets are cheering the government on it’s rather surprising that interest rates around the world for government debt are also at historic lows. In a post that’s been getting a lot of attention in the economics blogosphere, Joe Weisenthal points out that “borrowing costs for government are plummeting EVERYWHERE.” It’s reasonably well known that US 10-Year Treasury bonds are close to an all-time low but he points out that the same is true of Australia, France, Israel and Mexico. Here’s some other rates he lists -
- Japan: 0.778%
- Germany: 1.26%
- Sweden: 1.285%
- Finland: 1.501%
- UK: 1.549%
- Canada: 1.635%
These countries have different fiscal policies, but they all seem to have the same credibility. And, although the government tries to give the impression that the UK is top of the bond market pops, that simply isn’t true.