UK Economy on Brink of Collapse
(MENAFN) Britain is grappling with the alarming possibility of a repeat of its 1976 economic disaster, with skyrocketing debt and borrowing costs casting serious doubts on Labour’s fiscal strategies, economists have warned, according to media.
Nearly five decades ago, a Labour government was forced to seek a bailout from the International Monetary Fund (IMF) after runaway deficits and inflation plunged the UK into one of its worst postwar economic crises. The aftermath led to deep cuts and the eventual loss of power for Labour.
Today, Chancellor Rachel Reeves faces similar challenges, with projections revealing a staggering £50 billion ($68 billion) shortfall in public finances. Debt interest is poised to exceed £111 billion, and the national debt now stands at more than 96% of GDP, reaching £2.7 trillion—one of the heaviest burdens among developed nations. Meanwhile, borrowing costs are spiraling, with 30-year bond yields exceeding 5.5%, surpassing those of both the US and Greece.
Jagjit Chadha, former head of the National Institute for Economic and Social Research, cautioned that the UK's financial outlook is "as perilous as the period leading up to the IMF loan of 1976," raising concerns that Britain could struggle to meet its obligations for pensions and welfare.
Andrew Sentance, a former policymaker at the Bank of England, added that Reeves is "on course to deliver a [former UK Chancellor Denis] Healey 1976-style crisis in late 2025 or 2026," accusing the Labour government of exacerbating inflation through higher taxes, borrowing, and spending.
These grim warnings come ahead of Reeves’ first autumn budget, scheduled for next month, where she is expected to propose further tax hikes to fill the financial gap. Critics contend that such a move could deepen the UK's economic downturn.
The Labour administration also faces intensifying political and economic pressures, including eroding public support. On Saturday, Reform UK leader Nigel Farage declared that the UK is witnessing “the 1970s all over again,” while Conservative leader Kemi Badenoch condemned the rising borrowing costs as the direct result of Labour’s “economic mismanagement.”
Amid these financial strains, the UK government has committed to raising military spending to 2.5% of GDP by 2027, in line with NATO obligations. As one of Ukraine’s staunchest allies, Britain continues to provide billions in military and financial support, further stretching its already precarious finances.
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