The Long Backstory to Britain’s Sudden Bond Blowup

Britain broke all the wrong records in 2022, with its currency tumbling to an all-time low, the biggest-ever spike in government bond yields and the shortest-serving leader in history. The blowup was triggered in September by Prime Minister Liz Truss’s unorthodox plan to cut taxes and increase borrowing in an effort to boost economic growth. But this was a crisis years in the making, and it didn’t end with her downfall after six weeks in office. Government instability and trade disruption due to Brexit have collided with long-standing structural challenges that make the UK vulnerable to sudden swings in global capital flows.

Even before Truss’s ill-fated policy plan, the UK’s economy was lagging its peers. It took a heavier blow from the coronavirus than many other European economies, in part because it relied more on services and consumer spending, both of which were hurt by repeated lockdowns. The UK led the push to boycott energy exports from Russia over its invasion of Ukraine, then suffered from the resulting bout of global inflation, which worsened social tensions and poverty and triggered labor unrest affecting railroads, health services, colleges and the country’s biggest phone company. Britain’s is the only major economy still smaller than it was before the pandemic. India’s recently surpassed it as the world’s fifth-largest. In November, the stock market in Paris displaced London’s as Europe’s biggest.