{"id":677205,"date":"2026-05-18T09:44:19","date_gmt":"2026-05-18T09:44:19","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/677205\/"},"modified":"2026-05-18T09:44:19","modified_gmt":"2026-05-18T09:44:19","slug":"labour-cannot-escape-britains-debt-spiral","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/677205\/","title":{"rendered":"Labour cannot escape Britain\u2019s debt spiral"},"content":{"rendered":"

After months of registering mild but persistent disapproval of Western governments, the bond vigilantes came out in force at the end of last week. Friday\u2019s sell-off<\/a> was especially brutal, with the interest rates on Government debt rising between 0.1% and 0.2%, depending on the country. Stocks fell in response.<\/p>\n

The crisis in the Labour government and the possible return of Andy Burnham<\/a> to national politics seemed an obvious trigger for the panic. The Mayor of Greater Manchester, who can now run<\/a> in the Makerfield by-election after Labour MP Josh Simons vacated his seat, is on record saying<\/a> that the Government shouldn\u2019t be \u201cin hock\u201d to the bond markets. He has also floated<\/a> the idea of funding increased defense spending with debt.<\/p>\n

Although bond investors might not love Keir Starmer\u2019s premiership, they at least consider Rachel Reeves a more prudent chancellor than most other candidates within the Labour Party. Burnham\u2019s election isn\u2019t a shoo-in, as he\u2019ll have to run in a constituency where Reform UK is surging<\/a>. But if he wins, he\u2019ll become odds-on favorite to replace Starmer as party leader, and hence prime minister. It is therefore increasingly likely that the next government will be less committed to Reeves\u2019s \u201cironclad\u201d fiscal rules.<\/p>\n

Nevertheless, if Britain has become a particular target for gilt investors, the bond market revolt is broad-based. The interest rate on the debt of all Western governments has been rising<\/a> sharply \u2014 up a third of a percent in Germany since the start of the year, nearly half a percent in the US, and even more in Japan.<\/p>\n

Several recent events have raised the blood pressure of bond investors: Japan\u2019s fiscal loosening<\/a> under its new government, Donald Trump\u2019s pressure<\/a> on the Federal Reserve to cut interest rates, and above all the resurgence of inflation due to the US fiasco in Iran. Last week\u2019s inflation reports<\/a> out of Washington provided especially hard reading.<\/p>\n

However, the fundamental driver, common in varying degrees to all Western governments, is the seemingly endless rise in national debt. The massive increase in borrowing that happened during the Covid pandemic was meant to be a one-off that would, once business resumed, unleash a new Roaring Twenties of rapid growth that would quickly pay back debt.<\/p>\n

That didn\u2019t happen. After a brief post-lockdown burst, economic growth settled back down across the West. Debt kept rising. Now that interest rates are doing the same, a vicious spiral in which higher debt-servicing costs further increase debt risks is becoming entrenched<\/p>\n

The British anomaly is therefore not the rise in interest rates, but the greater magnitude of this rise. There is apparently an extra premium attached to UK debt. When interest rates rise everywhere else, they rise by more in Britain. A Burnham premium may be accelerating this, but it\u2019s been happening for years.<\/p>\n

Since 2016, British politics has been chronically unstable, and the country has acquired a knack for short-lived and often unserious politicians. The basic problem is that Britons keep saying they want better public services, but also lower taxes. Politicians thus promise both by saying they\u2019ll magically produce higher growth, or find savings that all their predecessors somehow overlooked. When, predictably, they fail to deliver on their promises, the public turns to the next purveyor of hope.<\/p>\n

Hence the instability, and politicians making pledges they can\u2019t fulfill, because voters don\u2019t want to hear the realistic ones. Until they do, politicians will have no incentive to change, either. The bond vigilantes will simply take it upon themselves to demand change.<\/p>\n","protected":false},"excerpt":{"rendered":"After months of registering mild but persistent disapproval of Western governments, the bond vigilantes came out in force…\n","protected":false},"author":2,"featured_media":677206,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[247552,74506,45,49,48,46,16938,18381,81567,4390],"class_list":["post-677205","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-andy-burnham","tag-bond-markets","tag-business","tag-ca","tag-canada","tag-economy","tag-keir-starmer","tag-labour-party","tag-uk-economy","tag-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/677205","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=677205"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/677205\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/677206"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=677205"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=677205"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=677205"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}