Does no one care about Britain’s soaring gilts?

The Chancellor Rachel Reeves is threatening a round of tax rises. RMT is on strike over the bank holiday. And something or other is going on with Masterchef. As the summer unfolds, British domestic politics is worrying about all its familiar issues. In the background, however, something far more serious is happening. The country is going quietly broke, and hardly anyone cares. 

On the bond markets, the yield on the UK’s 30-year gilt rose yesterday to 5.6 per cent, overtaking the equivalent US yield for the first time in a generation, and approaching its highest level since 1998. The 30-year yield is significant, because it represents investors’ views of the long-term solvency of the British state. It is a judgement on whether the money you lend to the government now will be returned in 2055 and whether the interest will be paid in the meantime. And while the answer to that is still ‘yes’, it is a far less definite ‘yes’ than it has been at any time over the course of this century. It is fast getting close to the level where it is more like a ‘well, maybe’. It is not just 30-year debt. The yield on benchmark 10-year gilts has been soaring as well, rising to 4.7 per cent. It is above the level that provoked the meltdown in the wake of Liz Truss’s mini-budget back in 2023, when it spiked up to 4.3 per cent, a level that, at least according to every Labour front-bencher, ‘crashed the economy’.

That matters, for two reasons. First, we are already spending vast amounts of money servicing our debt. According to the Office for Budget Responsibility, over the course of this financial year, the UK will spend £111 billion on debt servicing alone, or 8.3 per cent of total public spending. As the debt becomes more expensive, and as it has to be refinanced, that figure will only grow and grow. Very soon the Chancellor will be raising our taxes not to pay for more hospitals, or better schools, but simply to pay the interest on our outstanding debt. The rising yield also reflects a consensus view that the British government has lost control of its finances, and once the markets have formed that opinion it will be very hard to get investors to change their minds.

The harsh reality is this. If the 30-year yield goes above 6 per cent, Britain is almost certainly broke. We have not quite got there yet, but we are getting dangerously close. When it happens, no one can say they weren’t warned.