Economic warning as costs surge
The UK is heading into a dangerous “debt doom loop” that threatens to choke economic growth, drive out investment and leave taxpayers footing an ever-growing bill.
As government debt climbs to 101% of GDP – the highest in decades – experts are warning that Britain is now stuck in a self-reinforcing financial trap: borrowing more to cover rising costs, pushing up interest rates, which then make borrowing even more expensive.
This cycle, once set in motion, becomes harder to escape. Higher debt demands higher repayments. Higher repayments limit public spending or force tax hikes. And both hit confidence, investment, and growth – feeding back into the need to borrow more.
What is the debt doom loop?
The term “debt doom loop” refers to a scenario where governments become trapped by the very tools they rely on to manage their finances. Instead of investing in growth or public services, more and more of the national budget goes on simply servicing debt.
In the UK, interest payments on government borrowing have risen sharply, making it one of the country’s largest public spending items. With long-term borrowing costs now at their highest this century, the room for further borrowing is all but gone.
The Office for Budget Responsibility has warned that without major changes, interest payments could surpass spending on schools or defence within the next few years.
Why the danger is growing
The UK currently runs a budget deficit of 5.1% of GDP – well above the 3% level considered sustainable by international standards. That means the country is adding to its debt year after year, even before any new economic shocks hit.
At the same time, economic growth remains sluggish. That limits the government’s ability to grow its way out of debt. Instead, pressure builds to raise taxes or slash spending – both politically difficult and economically risky.
The real impact on Britain
This isn’t just an abstract problem. For households, it could mean higher interest rates for longer, pushing up mortgage costs. For businesses, it may lead to reduced government support and lower investor confidence. And for public services, it risks deeper cuts and underfunding.
Worse still, rising taxes to cover the gap could prompt skilled workers and wealthy individuals to leave the UK – shrinking the tax base even further and fuelling the next stage of the loop.
Already, the government has broken key tax pledges in an attempt to contain the crisis. And with limited scope to borrow more, Chancellor Rachel Reeves faces hard choices. Raise taxes again and risk economic flight, or cut spending and face backlash over public service decline.
Can Britain escape the loop?
Breaking out of the doom loop will require decisive action: balancing the books through carefully targeted reforms, restoring confidence in the markets, and boosting productivity to lift long-term growth.
But with political stagnation, rising global pressures, and an electorate already weary of austerity and inflation, escaping the spiral won’t be easy.
Unless urgent steps are taken, the UK risks drifting deeper into a debt trap that could take a generation to undo. The longer the country waits, the narrower the path out becomes.
