UK borrowing costs tumble to lowest in THREE CENTURIES as investors seek safe havens

Borrowing costs in Britain tumbled to the lowest level for more than 300 years yesterday as the eurozone crisis spurred demand for safe investments.



The yield on ten-year gilts – the benchmark interest rate paid by the UK government to borrow – dropped to a record low of 1.92 per cent.



That was below the previous low of 1.96 per cent recorded in 1897 and the lowest level since Bank of England records started in 1703.

Historic: Borrowing costs hit their lowest level since Bank of England records started in 1703

The figure edged back up to 2.02 per cent today.



But the historic low provided ammunition for those claiming Britain is now a safe haven for investors looking to avoid high-risk debt in the eurozone.



YIELDS TODAY ON 10-YEAR GOVERNMENT BONDS

The cost of borrowing has plunged for the likes of Germany and the UK while eurozone periphery countries have seen huge rises. Yields taken today at 3.30pm: Switzerland - 0.70%

Japan - 0.97%

Sweden - 1.64%

Germany - 1.82%

U.S. - 1.93%

Canada - 1.97%

UK - 2.02%

France - 3.11%

Spain - 5.15%

Italy - 6.38%

Greece - 27.75%



The demand for UK debt was underlined again today when investors bid for more than twice the £4billion pounds of four-year gilts on offer.



T he auction by the UK Debt Management Office for September 2016 bonds saw a much stronger turnout than at the last sale this bond in July 2010.



Analysts put the demand down to the on-going chase for safe-haven assets coupled with expectations that the Bank of England will expand its quantitative easing programme next month.

The UK has been described as ‘a beacon of sanity in Europe’ where countries including France have had their credit ratings downgraded.



Britain's relative separation from the eurozone's debt crisis and the fact it still has its own currency - and control of monetary policy - has also played in its favour.



A Treasury spokesman said: ‘These record low gilt yields demonstrate the market’s continued confidence in the Government ’s plans for fiscal consolidation.’



The equivalent 10-year borrowing costs in Italy were around 6.5 per cent and more than three per cent in France compared to the UK's low of 1.92 per cent. German 10-year bonds were today at 1.82 per cent.



The Bank of England is expected to boost its £275billion QE programme next month. The most recent slug of money creation was £75billion in October.



The aim is inject liquidity into the financial system, by buying government bonds that are already being traded, and encourage lending. But it also has the obvious effect of increasing demand for these bonds, pushing up their prices and cutting yields - making it cheaper for the government to borrow.

The European Central Bank, in contrast, has so far resisted calls to embark on a programme of QE, mainly due to opposition from Germany which fears it will lead to inflation.