Part 7/8:
In light of dwindling growth and a commitment by the new labor government to avoid increasing taxes, the UK has faced escalating public debt, raising the debt-to-GDP ratio. Reports indicate that this ratio has soared above 100%, triggering sell-offs in UK bonds. Consequently, yields on government bonds have surged to levels not seen in 25 years, significantly increasing the cost of borrowing for the government.
This trend poses a conundrum for the Bank of England, which had aimed to lower interest rates. However, escalating inflation—largely driven by the weakening pound and rising import costs—complicates this goal, as the central bank may be compelled to maintain or raise rates, limiting the options for economic stimulus.