About the UK's 'moron premium'....
The jump in UK borrowing costs has reignited talk that the UK is suffering from a ‘moron premium’ on its debt.
This term was coined by Dario Perkins of City research firm TS Lombard back in 2022 after Liz Truss’s mini-budget sparked a bond sell-off, and tends to be trotted out whenever UK bonds are under the cosh.
Yesterday, chancellor JohnHealey cited Liz Truss, austerity, and Brexit as causes of the UK’s borrowing challenges.
But, in a note titled “Diagnosing the cause of the UK’s moron premium”, Simon French of Panmure Liberum argues that the real cause of this excess yield premium is the UK’s inflation problem, due – he argues – to an inefficient supply side of the economy,,
French argues:
If something broke in the Gilt market in 2022, as Healey claims, then it was higher global inflation revealing the UK as a high beta economy for that theme.
Truss and Austerity did not make the UK economy high beta, and whilst Brexit did add inflationary frictions into the UK’s trading regime it has been less significant than the frictions created in domestic-orientated supply.
It would be easy to dismiss this as political framing from Healey, but for the fact that an honest diagnosis is necessary to unwind some of the luxury beliefs that gum up the supply side of the UK economy. “Control” - still an ill-defined concept by this government - will need to be a Trojan Horse for supply side reform if the UK government’s moron premium is to be reduced.
[‘high beta’ is a financial term for heightened volatility, such as a stock which moves up and down more rapidly than the wider market].
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