Britain's high borrowing costs and low fertility rate could trap us in a debt doom loop

There is a foreboding sense that this winter could be a dark one when it comes to UK debt.

- Richard Davies

Charles II was so cash-strapped he 'stopped' all payments from the exchequer.

(Heritage/Fine Art/Getty)

Cracks are appearing. Three years ago, the UK sat in the middle of the G7 range when it came to borrowing costs: Japan, Germany and France paid less, the US, Canada and Italy more. Today, Britain pays most. Debt interest was around £40bn a year in the 2010s. Now it is more than £110bn.

It's not just that borrowing costs are up - there is more volatility too. Using daily data starting in 2005, we can isolate days when yields have shifted 25 basis points or more. That's big: as big as the adjustments the Bank of England's rate setters make to stimulate, or slow, the economy. There have been lots of shocks - the crash, the referendum, the pandemic - yet most of the big market-shaking days have happened since 2021. What explains Britain's debt shakes?

Bond yields and prices move inversely. Our high and shaky yields mean that the prices investors - savers - are willing to pay are low, and moveable. Seen that way, Britain's debt pain is easier to understand.