The UK at least has a chance to mitigate this same damage a few months earlier. Failure to do so courts financial fate. While I agree with optimists that British sovereign debt is manageable and that premature fiscal retrenchment would be self-defeating folly (the debt ratio would rise faster if there is an output gap), it would be unwise to ignore the bond vigilantes altogether.
The Office for Budget Responsibility estimates that the debt ratio will hit 105pc of GDP this year, up from 85pc pre-Covid. There is no particular line in the sand. Global debt markets are a beauty contest between bad, worse, and dreadful.
The UK is not dreadful. It has the longest debt maturity among G7 states as a safety buffer, and residual advantages as a reserve currency holder. Put another way: you don’t have to outrun the lion; you have to outrun the other wounded zebra. But you do have to run.
You also have to pay attention to the elephant in the global bathtub. The surge in US Treasury yields this year is sending tremors through world debt markets and has become disconcerting. British 10-year borrowing costs have jumped fourfold since early January to 0.76pc.
It is one thing when nominal yields rise; it is another when real yields become unhinged. It means the bond markets are pricing in more than inflation risk. They are starting to choke on the sheer volume of debt issuance. Such is the dark side of Joe Biden’s war economy plans: near instant and turbo-charged fiscal stimulus worth 13pc of GDP, if you include the $900bn Christmas package.
The surge in gilt yields partly reflects vaccine optimism and merely takes us back to pre-pandemic levels. It is not yet unhealthy. But it could become so over the next year if the US Federal Reserve has to jam on the brakes to prevent inflationary overheating. We might then find that global fund managers demand a higher premium to cover our incontinent deficits and to refinance our maturing debts.
The greatest problem with a lockdown that has lost its rationale – to the point of incoherence – is that people will progressively ignore it and ultimately defy it. We will then have a rule of law crisis. No government should ever get into that predicament.
We increasingly hear the argument that Britain must remain confined because resistors refuse to take the vaccine and must not be left protected. Such twisted reasoning cannot command the consent of this country. Those advancing this justification for the indefinite suspension of civil liberties and economic activity need to lie down in a dark room and get a grip.
