{"id":3563,"date":"2025-09-08T21:48:16","date_gmt":"2025-09-08T21:48:16","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/3563\/"},"modified":"2025-09-08T21:48:16","modified_gmt":"2025-09-08T21:48:16","slug":"is-the-u-k-a-canary-in-the-coal-mine-for-a-heavily-indebted-world","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/3563\/","title":{"rendered":"Is the U.K. a Canary in the Coal Mine for a Heavily Indebted World?"},"content":{"rendered":"\n

LONDON\u2014This past week, U.K. long-term borrowing costs hit their highest level in decades, causing Treasury chief Rachel Reeves to shoot down suggestions that the heavily indebted country is heading for a fiscal crisis.<\/p>\n

\"The PREMIUM The U.K. is expected to increase taxes again, partly to offset rising borrowing costs. <\/p>\n

Most economists agree with her\u2014for now. But in a world where industrialized nations have taken on record amounts of debt and are paying ever more to finance the borrowing, the U.K. could become the financial markets\u2019 equivalent of the proverbial canary in the coal mine\u2014a leading indicator of trouble for other debtors like the U.S. and France<\/a>, economists say.<\/p>\n

\u201cThe U.K. isn\u2019t alone in all of this,\u201d said Ruth Gregory, deputy chief U.K. economist at Capital Economics. \u201cThere is a common theme across many G-7 countries that the conditions do seem to be in place for a potential fiscal crisis, although that doesn\u2019t mean a crisis is imminent or inevitable.\u201d<\/p>\n

Last year, the British Labour government announced the biggest tax hike<\/a> in a generation, billed as a one-off effort to plug a widening shortfall in public finances and reassure investors that the U.K. was a country serious about balancing its books. But now, Reeves is expected to return in November to ask British taxpayers for billions more in taxes<\/a>.<\/p>\n

The reason: The U.K.\u2019s borrowing costs keep rising, its economy isn\u2019t growing as fast as hoped, and the government, despite having a healthy majority in Parliament, has struggled to cut ballooning welfare spending. Economists worry the pattern could keep repeating.<\/p>\n

Over the past two decades, governments went on a debt binge, fueled by low interest rates. Now that rates have risen, investors worry that Western governments aren\u2019t willing to make politically difficult decisions to curb public spending, leaving politicians caught on a hamster wheel of ever higher taxes. France\u2019s government is expected to fall in the coming week amid political opposition to proposed spending cuts and the elimination of two public holidays<\/a>\u2014a move to raise tax revenues from two more working days.<\/p>\n

The amount of debt as a percentage of annual economic output in advanced economies has doubled since 2007 to around 80%, according to the International Monetary Fund. The IMF says public debt could rise close to 100% of the global economy by the end of the decade, in part because of rising interest costs.<\/p>\n

In the last year, net interest payments on government debt across the globe rose 11.2% to $2.72 trillion, partly driven by stubbornly high inflation that keeps interest rates high.<\/p>\n

The U.K. isn\u2019t the most indebted Western country, nor is it the slowest growing. Unlike the U.S., however, it doesn\u2019t have a major reserve currency. And unlike its European neighbors, it isn\u2019t part of a currency club with a big central bank that helped engineer bailouts of debt-laden countries. It also has a recent history of market turmoil, when the pound crashed in 2022 after then Prime Minister Liz Truss signed off on unfunded tax cuts combined with big borrowing. (Truss was ejected from Downing Street<\/a> within weeks.)<\/p>\n

Investors now demand a slight premium to lend to the U.K., whose borrowing costs have risen sharply in recent years, partly as a result of persistently high inflation. Yields on 30-year government bonds, or gilts, this past week hit levels last since in the late 1990s, rising higher than those of France, which has a bigger debt load. The yield on U.K. 10-year debt is now the highest in the Group of Seven nations, eclipsing the U.S.<\/p>\n

\u201cThere are countries that have got higher debt levels or higher deficits, but when you look at what you\u2019re having to spend in terms of borrowing costs that\u2019s where it becomes problematic,\u201d said Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management.<\/p>\n

Next year, the U.K.\u2019s interest payments are expected to hit \u00a3111.2 billion, or roughly $150 billion, twice what the country spends on defense. U.K. government debt, currently below 100% of gross domestic product, is projected to hit 270% of GDP by the early 2070s, pushed up by an aging population and spending on healthcare and pensions, according to the country\u2019s fiscal watchdog, the Office for Budget Responsibility.<\/p>\n

This combination has turned the U.K. into a potential tinderbox, where a market crisis, either at home or abroad, could trigger yields to jump up further, said Gregory of Capital Economics.<\/p>\n

Some argue that precisely because the Bank of England is independent and unlikely to bail out the government, the country will be a \u201cfirst mover\u201d in facing up to the reality of its borrowing glut since the pandemic. \u201cIt\u2019s going to be a mess, it\u2019s going to be painful, but the U.K. will at least confront the problem,\u201d said Robin Brooks, a senior fellow at the Brookings Institution. Others might not until there is a crisis.<\/p>\n

As things stand, an immediate repeat of the Truss market meltdown is unlikely, said Francis Diamond, head of European Rates Strategy at JPMorgan. The pound has risen against the dollar over the past year, a far cry from the steep falls seen under Truss or when the country was bailed out by the IMF in the 1970s.<\/p>\n

But the overall trend isn\u2019t positive. The Labour government, elected last year, vowed to be fiscally responsible. But its first efforts this year to trim the growth in welfare spending were knocked back by its own lawmakers in Parliament. In July, Reeves appeared tearful in Parliament after plans to make a modest welfare cut were abandoned as Labour\u2019s own lawmakers threatened a rebellion. A plan to cut a fuel subsidy to the elderly also had to be shelved.<\/p>\n

That, say economists, leaves Reeves with a very difficult balancing act when she presents spending plans this fall: finding a way to raise taxes but not crush growth.<\/p>\n

Write to Max Colchester at Max.Colchester@wsj.com<\/a> and Ed Ballard at ed.ballard@wsj.com<\/a><\/p>\n

\"Is Is the U.K. a Canary in the Coal Mine for a Heavily Indebted World? \"Is Is the U.K. a Canary in the Coal Mine for a Heavily Indebted World? \"Is Is the U.K. a Canary in the Coal Mine for a Heavily Indebted World? <\/p>\n","protected":false},"excerpt":{"rendered":"LONDON\u2014This past week, U.K. long-term borrowing costs hit their highest level in decades, causing Treasury chief Rachel Reeves…\n","protected":false},"author":2,"featured_media":3564,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,4640,85,4643,46,4642,4641,4639],"class_list":{"0":"post-3563","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-fiscal-crisis","11":"tag-il","12":"tag-interest-payments","13":"tag-israel","14":"tag-public-debt","15":"tag-treasury-chief","16":"tag-u-k-borrowing-costs"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/3563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=3563"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/3563\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/3564"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=3563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=3563"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=3563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}