Kallum Pickering, senior UK economist at Berenberg, said the sell-off of UK government debt looked set to worsen as “supply issues seem to be broadening rather than easing”.
“Judging by economic fundamentals, recent inflation developments and latest BoE policy guidance, the downturn in bond markets may have further to run.
“In addition, the UK is suffering from several, highly visible, local issues linked to low storage levels of natural gas and a shortage of drivers of heavy vehicles – which has triggered panic buying of petrol. Combined, the worsening global and domestic supply picture coupled with still strong demand points to further upside inflation surprises ahead.”
The pain ahead for British households next year was underlined by Capital Economics forecasts suggesting a £16.5bn blow to household spending next year from a combination of tax rises and higher inflation.
Its economist, Thomas Hoyes, said: “By slowing real consumption growth, this risks setting back the economic recovery. While that may not prevent the Bank of England from raising interest rates in the first half of next year, it may mean that rates rise more slowly than investors currently expect.”