Gerard Lyons has warned that Britain and several other major advanced economies are moving toward a sovereign debt crisis as governments struggle to rein in public spending and global borrowing costs continue to climb.
Speaking at the Edelman Smithfield Investor Summit, Lyons said the risks “might be starting to become more evident” in financial markets, noting that bond yields have risen sharply across the world. He argued that “six of the G7 are heading for a debt trap by the end of the decade,” referring to a scenario in which a country’s debt burden exceeds its annual economic output.
He said the danger is particularly acute for France and the UK because both rely more heavily on foreign investors to buy their government bonds.
Global bond markets have come under renewed pressure this week: US Treasuries are on course for their worst weekly performance in six months, even after figures showed the Fed’s preferred inflation gauge eased slightly in September. In Japan, long-dated government bond yields hit record highs amid expectations the Bank of Japan will raise interest rates next week.
In the UK, borrowing costs have steadied since Chancellor Rachel Reeves more than doubled the government’s fiscal headroom in the Budget, but gilts still trade at a notable premium to peers due to concerns spending could accelerate again.
Lyons, chief economic strategist at the £1.3bn wealth manager Netwealth, said Britain’s fiscal history underlines the challenge: the country has recorded only seven budget surpluses since 1969. “It’s very difficult for governments to get themselves in a position, when they’re in a debt trap, to stabilise it,” he said.
He warned that Western democracies appear “incapable or unable” to address the structural issues driving persistent deficits. “A debt crisis I would say is likely by the end of this decade,” he said, adding that markets may begin pricing in such risks far sooner — as briefly occurred with France earlier this year.
