Billionaire investor warns Rachel Reeves of the spiralling UK economy. (Image: Getty)
Billionaire Bridgewater founder Ray Dalio has warned that the UK is heading for a “debt death spiral”, as pressure builds on .
He warned the turbulent UK bond market, known as gilts, has sharply increased the cost of government borrowing.
The hedge fund tycoon has blamed the Chancellor’s Budget for the struggling UK , saying the combination of rising interest payments and higher borrowing needs will lead to a cyclical issue.
Mr Dalio told the : “This looks like a debt death spiral in the making because it will either require more borrowing to service the debt that will have to be serviced, squeeze out other spending, or require more taxes.”
The unsteady market “reflects a supply-demand problem” for gilts. He said: “Why else would long-term [yields] rise when there’s an easing [of monetary policy], the exchange rate is going down, and the economy is weak?”
Ray Dalio raises alarms over Rachel Reeves’ borrowing costs. (Image: Getty)
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Mr Dalio added: “When you get to the point that you have to borrow money to service the debt and 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.
“As those risks increase, everybody looks at that need to borrow more money at higher interest, which creates [a] self-reinforcing debt deterioration cycle.”
The billionaire also warned of the US market “exhibiting signs” of needing to borrow more to service existing debt, labelling it as the “first big issue” for the new president.
Earlier this month, , up from 3.75% in September 2024. This is due to a global bond sell-off coupled with low confidence over the UK economy. However on Monday, yields recover slightly to 4.66%.
In the US, 10-year yields increased by 1% to 4.62% over the same period.
Rachel Reeves at the the World Economic Forum (WEF) 2024. (Image: Getty)
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Chief executive of S4 Capital, Sir Martin Sorrell, echoes Mr Dalio’s concerns. Speaking to the , he said sentiment among business leaders towards Labour had “deteriorated quite seriously”.
“The irony about what’s happened is that before the election, they were doing the smoked salmon and scrambled egg breakfast to get business confidence so they got people onside,” Sir Martin said.
“Since they’ve been in power, they’ve found it more difficult. ‘People were a bit bemused by the Budget.
“We’ve got half the plan – we’ve had to take the unpleasant medicine, increase of taxes – now where’s the growth plan?”
A Treasury spokesperson said the government’s “commitment to fiscal rules and sound public finances is non-negotiable”, adding: “The Chancellor has already shown that tough decisions on spending will be taken, with the spending review to root out waste ongoing.”