Liam Halligan’s Sunday Telegraph piece sounds a familiar alarm: you can promise whatever you want in politics, but in the end, the bond markets always have the final say.
He points out that Labour might be cruising toward a reckoning. Borrowing keeps climbing, and investors are increasingly concerned about the state of the UK’s public finances.
Most people don't lose too much sleep over the state of the bond markets, but maybe most people should pay them a little more attention...?!?
The UK government has been spending more than it takes in taxes for many years now, and it has to borrow the rest.
A huge slice of the UK’s spending now just goes to paying off old debts.
And borrowing comes with interest, and if the interest rate goes up by just 0.1% that can been millions of pounds extra interest per year for the government, and the tax payer, ultimately.
Halligan points out that Britain’s ten-year gilt yields are still high by historic standards. Yes, they’ve dipped a touch with some hope the Middle East tensions will ease, but we’re still stuck at levels that would’ve set alarm bells ringing just a few years ago.
Liz Truss' now infamous 2022 mini-budget is hard to forget: markets lost faith fast, borrowing costs shot up, and the government was forced into a screeching U-turn.
Halligan says even with a new government, those yields stay stubbornly high. Labour claims it’s inherited a mess, plus global headwinds beyond its control.
But critics argue Labour just can’t resist spending, growing the state, and rolling out interventions, which always end up needing more tax or extra borrowing.
Halligan raises the important question about who actually holds government debt nowadays.
Pension funds used to quietly buy and hold government bonds—no fuss, no panic.
But today it's more likely to be hedge funds and traders who are more likely to shuffle their investements at a sniff of something better.
This could mean less demand for UK debt in the future... meaning less scope for government borrowing.
Halligan’s coming from a fiscally conservative angle, but his main point is tough to argue with.
Governments can shuffle priorities, tweak tax rates, slash spending, or borrow more. But financial markets are always lurking—they’re not swayed by campaign slogans or ideology. They just want to know: will you pay your debts or not?
Britain’s not in full-blown crisis mode, at least not yet. But the warning lights are hard to miss.
The real question for Labour isn’t about wanting to spend more. Every government wants that. It’s about whether investors are still happy to back those ambitions at a price Britain can stomach. Because when their faith runs out, you quickly figure out who’s calling the shots.
