Long-term British government bond yields are now at their highest level in almost 30 years.

What is even more concerning is that the UK economy is actually slowing down, which means that nominal GDP growth must now be considered significantly lower than long-term interest rates.

This is extremely critical, as it means that public debt as a percentage of GDP is now on an explosive rise, and if the UK government cannot convincingly demonstrate to financial markets that it will address the large budget deficit, currently around 5% of GDP, then expectations that the Bank of England will have to step in and run the printing press to finance the deficit will explode.

In that situation, the pound will collapse, and inflation will soar dramatically. And we are already on the way – despite the Bank of England lowering its monetary policy rate this year, long-term rates are rising – and yes, inflation is again rising sharply. We are currently at almost 4% – and there are indications that it may soon become much worse.

And the UK government is paralysed, and there is no indication that Prime Minister Keir Starmer has support within his Labour party to address the fiscal problems, while voter support for the populist Reform Party grows day by day, which is hardly encouraging if one believes there is a need for fiscal tightening and major macroeconomic reforms.

Public debt in the UK is already above 100% of GDP, and with interest rates as we see now, interest payments are consuming an increasing share of the state budget. This creates a vicious cycle where the government must borrow more to cover interest payments, which in turn increases debt and future interest payments.

And yes, it all looks very similar to the US, but unlike the dollar, the pound is not a global reserve currency.

So there is no mercy, and things could soon go very wrong in the United Kingdom.