|  Updated: 

Private investors bail out of UK gilts after mini-budget chaos

By:

Add as a preferred source on Google
"Although the fall in headline inflation is very good news, it is not informative about what we really care about: what we really care about is the persistent and the underlying inflation," Haskel told the Financial Times.
"Although the fall in headline inflation is very good news, it is not informative about what we really care about: what we really care about is the persistent and the underlying inflation," Haskel told the Financial Times.

Ownership of UK government bonds (gilts) by private investors have fallen to their lowest level since 1996, dropping 44 per cent in less than three years, according to data from the Office of National Statistics.

After peaking in December 2012, ownership of private gilts has been in terminal decline since September 2021.

Now, only £3bn in gilts is held by individuals, just 0.2 per cent of the £2 trillion that exists in the market, according to data from Lubbock Fine Wealth Management.

Andrew Tricker, director at Lubbock Fine Wealth Management, explained that gilt investors “have taken some time to recover” from recent macroeconomic events, such as the mini-budget and high inflation.

“Whilst the longer-term outlook for inflation is downwards there are still some dark clouds looming which are making investors cautious such as the Red Sea crisis, the Ukraine war and unexpectedly high levels of employment,” he added.

The Truss and Kwarteng mini-budget was a particularly hard time for gilt owners, as gilt yields were incredibly volatile, spiking one percentage point to their highest level since 2002 before returning to previous levels following Bank of England intervention.

“On the whole, private investors tend to take a bit of time to recover from a market shock which may explain why they weren’t quicker to buy back into the gilt market when it bottomed out at the end of September 2023,” said Tricker.

After the mini-budget, gilts endured a bruising 2023 as markets were forced to re-evaluate the path for interest rates from the BoE, with long-term gilt yields reaching their highest level since 1998.

However, Tricker argued the tides may be turning on private ownership of gilts, as big investment platforms have begun to report more buying of gilts from investors in the final quarter of last year, which wouldn’t be reflected in the ONS data yet.

He argued that since the UK is through “the worst of the inflation crisis”, investors may start to reconsider gilts as part of their diversified portfolios.

“The start of 2024 has seen gilts back some their gains of the last part of 2023 but over the longer term there’s likely to be value in the gilt market as inflation continues to fall,” he added.