Turbulence in the British bond market is reminiscent of the debt crisis of the 1970s

The British bond market witnessed turmoil that brought to mind the mini-budget crisis under former Prime Minister Liz Truss in 2022, but the most dangerous comparison is with the debt crisis of the 1970s.

This path has been cautioned against by Martin Weale, a former member of the Bank of England’s Monetary Policy Committee, who noted that the Labor government may have to adopt austerity policies to reassure markets about tackling the UK’s rising debt burden if the current situation does not change.

British 10-year bond yields rose to the highest level since 2008

What has happened in recent days is a combination of a sharp rise in long-term borrowing costs and a decline in sterling – a dangerous combination that may indicate a loss of confidence among investors in the government’s ability to control public debt and curb inflation.

Normally, high returns support the currency, but the British pound fell on Thursday morning to below $1.23, its lowest level since November 2023, while

Yields on 10-year government bonds have jumped to the highest level since August 2008, and this brings to mind the “nightmare” of the 1976 debt crisis, which forced the then government to request a financial rescue from the International Monetary Fund.

The current rise in debt costs also threatens to erode the budget reserve of £9.9 billion.

According to experts, if current market conditions worsen, Labor will have no choice but to cut spending and raise taxes to reassure markets that the debt is being managed properly.