Bank of England's Bailey sees long-term pressures driving up government debt

LONDON, Sept 4 (Reuters) - ‌Bank of England ​Governor ​Andrew Bailey said on Friday that weak productivity and shocks such as COVID-19 were behind ‌a climb in public debt across advanced economies, ⁠which in turn was pushing up borrowing costs.

"There are very, very ‌substantial challenges at the ‌moment, structural challenges," Bailey said at a conference hosted by the London School of Economics' Trium MBA ​programme.

Ageing populations and a desire for higher defence spending were also important factors, he added.

"That is, I ⁠think, relevant to thinking about the pressures on bond markets," he added, in ​response to a question about why investors had recently wanted to receive a higher interest ​rate on French government debt ‌than that of cosmetics company L'Oreal.

Government bond yields have surged in recent months and earlier ⁠this week British 10-year bond yields were their highest in almost 20 years, and longer-dated yields hit their highest ⁠since 1998.

Bailey voted with the majority of the Monetary Policy Committee's ​members to keep interest rates on hold in July as the MPC awaited clearer signs of what the Iran war means for ‌long-term inflation pressures.

Investors in interest rate futures on Friday priced the chance of a ‌quarter-point rate hike at the MPC's next meeting this ⁠month at about 10% ‌although that probability ​rose to more than 60% for the subsequent meeting in November.

(Reporting by David MillikenEditing by William ‌Schomberg)

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