Rising borrowing costs and debt levels could trigger a self-reinforcing fiscal crisis, according to Bridgewater Associates’ boss
The UK faces significant fiscal risks due to its rising borrowing costs and increasing debt levels, the boss of the world’s largest hedge fund, Ray Dalio, has warned.
Britain’s annual interest payments have surpassed £100 billion (roughly $125 billion), Dalio, the founder of investment management firm Bridgewater Associates, said in an interview with the Financial Times.
The recent sell-off in fixed-interest loan securities issued by the UK government, known as gilts, coupled with the weakening of the British pound, indicate that the market is struggling to absorb the government’s higher borrowing requirements, he explained.
“When you get to the point that you have to borrow money to service the debt and interest rates are rising, so that debt-service payments rise, so you need to borrow more money to pay them, you’re in what the markets call a death spiral,” the investor told the FT in Tuesday’s report.
The UK’s ten-year borrowing costs rose from 3.75% in mid-September to a 16-year high earlier this month at 4.93%, the outlet noted.
”As those risks increase, everybody looks at that need to borrow more money at higher interest, which creates [a]self-reinforcing debt deterioration cycle,” Dalio also pointed out.
The UK government in October adopted a budget for the financial year 2025/2026, pledging more funding for essential services and social support, and increased debt-servicing costs. Although the government announced tax increases, analysts have pointed out that these may not fully cover the additional spending, particularly amid slower economic growth.
The British pound has been declining since September, having lost about 8.2% of its value against the US dollar. The drop has been attributed to rising borrowing costs, market apprehension about the country’s debt levels, and reduced investor confidence.
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The trends have prompted another warning, this one from Berlin-based credit rating agency Scope Ratings. Recent moves in UK debt markets and the falling pound suggest that cracks may be appearing in Britain’s reserve currency status, Reuters reported on Wednesday, citing Denis Shen, a top analyst at the agency. The UK’s vulnerability to emerging market-style sell-offs could jeopardize its AA credit rating, Shen warns.
In response to the challenges, the UK government said it remained “absolutely committed” to strict fiscal discipline. Prime Minister Keir Starmer and Chancellor Rachel Reeves have described their fiscal rules as “ironclad” and “non-negotiable.”
