Rising borrowing costs and increasing debt levels could push the UK into a self-reinforcing fiscal crisis, according to Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund.
In an interview with the Financial Times, Dalio highlighted that the UK’s annual interest payments have now surpassed £100 billion ($125 billion). He noted that the recent sell-off in UK government debt, or gilts, combined with a weakening British pound, indicates that the market is struggling to absorb the country’s rising borrowing needs.
“When you have to borrow money to service debt and interest rates are rising, it creates a death spiral,” Dalio said. He added that the UK’s higher borrowing costs, which reached a 16-year high of 4.93% earlier this month, are exacerbating the situation.
Dalio warned that as borrowing costs climb, the need for further borrowing could lead to a “self-reinforcing debt deterioration cycle.”
The British pound has fallen by 8.2% against the US dollar since September, fueled by concerns over the UK’s debt levels. Credit rating agency Scope Ratings also warned that the country’s vulnerability could threaten its AA credit rating.
The UK government has pledged to stick to fiscal discipline amid these challenges, despite growing concerns over its financial stability.