UK economy faces recession risk amid global bond sell-off

The United Kingdom faces significant economic risks as a global bond sell-off, triggered by rising US Treasury yields, threatens to destabilize the UK gilt market. Analysts warn that the UK could face a recession far more severe than recent financial crises if American borrowing costs continue to climb.

Rising yields in the US are driven by concerns over the American deficit and persistent inflationary pressures. Recent 30-year Treasury auctions saw yields reach levels not seen in over two decades. This volatility is compounded by geopolitical tensions, including the lapse of a ceasefire between Washington and Tehran and an attack on a vessel in the Strait of Hormuz, which has fueled fears of rising oil prices and renewed inflation.

Experts note that the UK is particularly vulnerable due to its high public sector debt, which sits near 95% of GDP. Increased debt-servicing costs and higher interest rates for mortgages and corporate debt could strangle the stagnant UK economy, potentially forcing fiscal consolidation or triggering a gilt crisis.