On Monday, GB News published an article stating that Britain’s finances are in deep trouble.  Public debt has reached 96.4% of GDP and a deficit of 5.1%, prompting warnings of a potential Bank of England bailout.

Economists have warned that this could lead to higher interest rates and mortgage costs, impacting households and the economy.  Families will pay the price due to high borrowing costs, debt and potential interest rate increases.

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The following is paraphrased from an article published by GB News, which you can read in full HERE.

The British economy is facing significant challenges, with public debt reaching 96.4% of gross domestic product (“GDP”), which is substantially higher than the 61.2% recorded in 1976 when the country required support from the International Monetary Fund (“IMF”).

The current economic growth rate of 1.2% and deficit of 5.1% are indicative of weaknesses greater than those experienced during the tenure of Labour Prime Minister James Callaghan.

The Government’s borrowing costs have increased dramatically, with ten-year gilt yields at 4.6% and thirty-year gilts at 5.5%.

Economists’ and Politicians’ Views on the Economy

According to independent economist and Institute of Economic Affairs fellow Julian Jessop, the UK Government may be forced to seek indirect support from the Bank of England, which could have a profound impact on interest rates and mortgages, as quantitative easing can lead to higher inflation and blurred lines between fiscal and monetary policy.

Former Chancellor Kwasi Kwarteng has described Britain’s finances as “concerning” and “serious”, warning that the economic outlook remains “very weak” and that the current approach may lead to the country seeking IMF support, similar to the situation in the 1970s. He said: “Labour have embarked on a full socialist programme, more taxes and more spending.”

Economist Justin Urquhart Stewart has stated that the economy is “hurtling towards the edge of the canyon” and that the Treasury would be wise to establish contact with the IMF, while the IMF has urged Chancellor of the Exchequer Rachel Reeves to introduce more flexibility into her fiscal rules to allow for more effective responses to economic shocks.

Despite these warnings, Reeves has chosen to maintain her original framework, which may lead to increased borrowing costs and upward pressure on mortgage rates, ultimately affecting households as market instability persists and interest payments rise.

Chancellor Rachel Reeves has been criticised by her rival, Sir Mel Stride MP, for “economic mismanagement,” which he claims has left Britain’s public finances vulnerable to future shocks and has resulted in high borrowing costs, rising welfare spending and record-high taxes.

According to Stride, Britain now has the third-highest deficit and the fourth-highest debt burden in Europe, with borrowing costs among the highest in the developed world, putting families at risk of paying the price for the economic mismanagement.  Stride warned: “Labour’s recklessness risks it all – your pension, your job, your savings, your home.”

Former Chancellor Lord Norman Lamont has warned that the UK’s financial position is unsustainable, citing the Office for Budget Responsibility’s concerns, and stating that history shows that if something looks unsustainable, it won’t be sustained.

In response to the criticism, a Treasury spokesperson has stated that the Government’s fiscal strategy focuses on delivering stability through robust fiscal rules and increasing investment to boost productivity and growth, with the IMF welcoming the Government’s reforms to the fiscal framework and supporting the Government’s Growth Mission.

Current Economic Contraction

The economy has shrunk by 0.1% in May, marking the second successive month of contraction.  Inflation is sitting at 3.4%, housing costs are up 6.7% and rents are rising 7%, according to the Office for National Statistics.

Market analysts had expected growth, but the contraction has underlined new signs of economic problems, with UK Finance reporting that mortgage lending totals £1.7 trillion and the Financial Conduct Authority (“FCA”) warning that 700,000 fixed-rate mortgage deals will end this year, tightening the squeeze on households, GB News said.

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