The Chancellor is under mounting pressure after UK borrowing costs hit their highest level since 1998, prompting warnings that the UK’s “credit card is maxed out”.
The surge in the cost of government debt has raised fears of a repeat of the sterling crisis of 1976, when Britain was forced to seek an emergency bailout from the International Monetary Fund (IMF).
The yield on 10-year gilts climbed to 4.8%, the highest since 2008, while 30-year gilts jumped to 5.22% – surpassing even last year’s turmoil under Liz Truss. Economists say this has left Reeves “politically boxed in” with little room for manoeuvre before her Autumn Statement.
However, the idea that the UK is a basket case has been rejected by the a majority of mainstream economists.
They point to the fact the UK had the fastest growth of the major G7 economies in the first half of this year, while a study published this week pointed to rising business confidence to the highest level in 10 years.
Earlier this year, the IMF itself upgraded its predictions for UK growth this year to 1.2% and 1.4% in 2026.
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said interest on the national debt, much of it run up by the last Conservative government, « is already consuming an ever-greater share of the budget ».
She added: « Reeves finds herself politically boxed in – unable to raise taxes without driving away high earners and businesses, and unable to cut spending without fracturing her parliamentary base.
« These are precisely the conditions that once forced the UK into the IMF’s arms. That of course does not make an IMF bailout inevitable, but it does mean that the UK faces a crisis dynamic that could spiral faster and more violently than in the seventies.
« If sentiment cracks, the impact will be felt almost immediately.
Daniel Wiltshire, Actuary & IFA at Wiltshire Wealth, said Reeves had “boxed herself in” and was now trapped in a debt spiral.
He said: « This is bad politics. By ruling out tax rises on ‘working people’, Reeves has boxed herself in. The easiest way to raise revenue – higher income tax or national insurance – is off the table.
« With limited options and debt costs soaring, a weak Budget could trigger a fiscal doom loop: markets demanding ever higher interest, driving even greater pressure for tax hikes. »
Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, warned bluntly that Britain’s “credit card is maxed out”.
He said: “This is the next budget black hole forming. The government’s approach is to go for growth and try and grow the economy so the debt shrinks in comparison.
« With debt to GDP rapidly approaching 100%, this is a high risk strategy and combined with tax rises on business, it looks even riskier.
« An alternative would be to focus on efficiency and effectiveness to do more for less but it seems that it doesn’t matter what party is in charge, the only approach is spending more money. The credit card is maxed out.”
Tony Redondo, Founder at Cosmos Currency Exchange, described the situation as a “moron tax” on the UK and warned of disaster.
He said: « The bond markets have already forced the UK to pay a ‘moron’ tax on its ever-rising debt mountain. The UK is already paying more in interest payments to service its debt than on defence or education. The situation is serious.
« The 10-year gilt yield rose to 4.8%, the highest since 2008, while 30-year gilts climbed to 5.22% on Tuesday, surpassing last year’s peak as borrowing costs surged to their highest level since 1998. The Office for Budget Responsibility (OBR) highlights just how vulnerable the UK position is.
“With net debt around 100% of Gross Domestic Product (GDP), a 1% increase in gilt yields increases debt interest spending by around 1% of GDP (£30 billion in 2024-25 terms) in the long run. With her own party refusing to allow Reeves to cut spending, the only option is yet more tax increases, which will bury the economy. A run on the Pound is almost inevitable. At least we will not be alone as the French will be keeping us company.”
Samuel Mather-Holgate, of Mather and Murray Financial, told Newspage: « Make no doubt about it, Britain is in crisis. The markets see what’s happening and they have given their verdict through rising bond yields. Reeves needs to raise money and stimulate growth and she’s doing neither.
“Bound by the ridiculous commitments in Labour’s manifesto, they are left to tinker around the edges whilst Rome burns. One of these protected taxes needs to be raised, and growth strangling taxes like business national insurance need to be scrapped. This way she might get the shot in the arm the economy needs and raise receipts at the same time.”
Keith Budden, of Ensurety, said: « We are technically avoiding a recession but to the average person or business it doesn’t feel like that. Yes tax rises and spending cuts will be painful but I really think Reeves has no choice.
“We have a hard 12 months to come, what Reeves does need to do is show us what the sunny uplands beyond look like so we are all ready for the journey with a heavy rucksack on our backs – can she do that? The jury is out.”
