UK encounters ‘debt death spiral’
Date
1/25/2025 6:22:41 AM
(MENAFN) Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund, has issued a stark warning about the UK's rising fiscal risks, highlighting the country’s soaring borrowing costs and growing debt burden. Dalio noted that the UK's annual interest payments have exceeded £100 billion ($125 billion), and recent market reactions—including a sell-off in UK government debt (gilts) and a weakening pound—show that investors are struggling to handle the government’s increased borrowing needs.
Dalio explained that the situation could lead to a "death spiral" when the government is forced to borrow more money to pay off rising debt-servicing costs, which in turn leads to even higher borrowing requirements. The UK's borrowing costs have surged from 3.75% in September to nearly 5% in early January, contributing to the negative cycle.
While the government has pledged additional spending in the 2025/2026 budget and increased taxes to cover the costs, analysts worry that these measures may not be sufficient, particularly with slower economic growth. Meanwhile, the British pound has lost over 8% of its value against the US dollar since September, reflecting investor concerns over the country's fiscal stability.
The warnings have been echoed by credit rating agency Scope Ratings, which suggests that the UK’s ability to maintain its reserve currency status may be at risk. In response, the UK government remains firm in its commitment to fiscal discipline, with Prime Minister Keir Starmer and Chancellor Rachel Reeves emphasizing their "ironclad" fiscal rules.
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