Fraser Nelson Fraser Nelson

Is Brown’s debt binge worrying the lenders?

Might Gordon Brown take so many risks with the public finances that Britain would be considered in danger of defaulting on its loans? This prospect may be laughed off in Westminster, but not in the City where five-year contracts on UK gilts today surged another 4bps to a record high of 87.5bps. In English, this means investors are now paying £8,750 a year to insure every £1m of UK government debt against default.  It’s a straight equation: the higher this premium rises, the greater the perceived chance of government insolvency.

Credibility in the debt markets is crucial: for the next five to ten years the UK will be dependent on whatever cash it cam bum off the Chinese, Arabs and the ever-diminishing supply of people with money to lend to this spendthrift government with its devaluing currency. So phrases like “credit default swap rates” may sound boring, but couldn’t be more important in the debt-dependent era which is now in prospect.

Comments

Join the debate for just $5 for 3 months

Be part of the conversation with other Spectator readers by getting your first three months for $5.

Already a subscriber? Log in