11:39 AM EST, 01/13/2025 (MT Newswires) -- A toxic combination of stagflation and debt sustainability concerns have resulted in United Kingdom gilts being disproportionally hit in the global bond sell-off, said Societe Generale.

However, comparisons with the market crisis during the brief premiership of Liz Truss are exaggerated, as the economic conditions are entirely different and new liquidity measures introduced by the Bank of England (BoE) should limit any disorderly rise in Gilts, stated SocGen.

Nonetheless, the fiscal implications are more severe, wrote the bank in a note to clients. If market expectations of Bank Rate and gilts remain in place, the headroom in the spring forecast round on March 26 could be entirely wiped out.

To maintain the U.K.'s fiscal credibility, this will need to be addressed, likely through cuts to welfare spending in SocGen's view.

However, SocGen's expectation of more aggressive easing from the Bank of England may alleviate some of the pressure on Gilts.