IFS Zooms In: The Economy Is the UK in hock to the bond market?
Nov 13, 2025
Jack Meaning, Chief Economist at Barclays, and Ben Zaranko, Lead Researcher on Public Finances at the Institute for Fiscal Studies, delve into the complexities of the UK bond market. They discuss how government borrowing has surged post-pandemic and the shifting landscape of gilt investors. The duo reflects on the impact of the controversial Liz Truss mini-budget, investor confidence, and the implications for fiscal credibility. As government debt becomes costlier, they explore how upcoming budget decisions might influence economic growth and living standards.
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Why Governments Need Bond Markets
- Governments must borrow from investors if they want to fund public services without immediate taxation.
- Borrowing requires agreeing terms with the market, which determines cost and feasibility.
Prices Versus Yields Explained
- Bond prices and yields move inversely: higher prices mean lower yields and vice versa.
- Yield equals the effective interest return investors receive across a bond's life.
Higher Net Borrowing Is Pressuring Markets
- UK net borrowing that private investors must absorb has risen to around 4% of GDP and may reach 6%.
- This is much higher than historical norms and raises pressure on demand for gilts.