Can the UK actually go 'bankrupt' and if so what happens?

[HeMadeMeSwoon]

Lots of threads at the moment about budgets, tax rises, changes to pensions, benefit cuts etc.

Without getting into the detail of what should be raised or cut can the UK ACTUALLY go bankrupt?

My understanding is that because we have our own currency we technically can't as we can just print more money. However this leads to it's own set of problems and is not really desirable. (Also if we can do this then why did we need an IMF bailout in the seventies?)

So if RR and KS do their budget but just tinker about with it and do nothing radical then what will happen.

I mean they might raise a bit of extra cash on some things but if they keep spending the way they are then without substantial extra cash coming in via taxes or growth, the debt will keep getting bigger.

There just seems to be lots of things all coming together to create a big 'bang' at the moment. Taxes seem to be almost maxed at or even falling. They seem to have stalled growth with some of the things they did last year (lots of threads giving the impression jobs are hard to come by just now). Costs seem to be going up and up. Last but not least the worse the situation gets the worse our interest seems to get (on bonds).

So what would happen if next month they couldn't borrow enough to make it all work. I mean isn't it a terribly risky way to run a country being reliant on having to borrow each month to pay your bills.

We all seem to think the idea of having no NHS or welfare state is unthinkable. Britain used to operate just like this. If you could pay you got a doctor, if you couldn't you didn't. If you were so poor you couldn't survive and had nobody to help you went to the workhouse (my mum was born at start of WW2 and used to talk about this).

Surely if we keep going till it blows up this is exactly what we are going back to?

There are lots of threads arguing about which benefits should be cut or which taxes should be raised but since we all seem to be agreed that RR/KS aren't capable of fixing things then what happens when it goes bang?

Do we get an IMF bailout with conditions imposed (so NHS, welfare all slashed?) or do we print more money (in which case why didn't we do this in the seventies when we got the last IMF bailout?). Presumably printing money signals huge problems in the UK which in turn makes our bonds harder to sell and more interest on them. Surely investors would just stop buying them?

Please no arguing about disabled children in the gutter or pensioners freezing to death.

Just at the highest level what actually happens?

(Thread inspired by watching podcast with someone high up in IMF who was saying debt to GDP concerning and alot of things that sounded worrying)

In the past we sold off industries and got cash inflow. We sold off gold and got cash inflow. We printed money and got cash inflow. It does seem however the world is watching the UK at the moment quite carefully and alot hinges on the budget and I don't think we have anything left to sell now do we?

So at the very top, the UK as a whole, what happens?

Could you post a link to the podcast please?

I will try and find it again and post. I watched about 6 podcasts on the economy last night (exciting weekend!)

There seems lots about inverted yield curves and how they always come before a fallout (ie the 1929 crash). It seems we have one now (inverted yield curve) and it is more severe than even 1929.

Thus my wondering what happens if it all just comes to a head.

If you are looking for stuff on youtube I always think Ed Conway Sky News does really easy to understand financial analysis of what's going in. He's not overly dramatic or anything so I often watch him.

Each country has a credit rating which is a measure of how confident the international money markets are that the country will properly honour its debts with without printing new money. Honouring debts by printing extra money doesn't count because dumping extra currency into the system just makes thr value of all existing money in the system go down so the debt has been "honoured" technically but it's the equivalent of paying someone the £20 you owe them with a note you've wiped your arse on.

The interest that is paid on sovereign debt is based on that credit rating. Our government is able to borrow £2bn at relatively affordable rates and sometimes it's sensible to do so eg if you're going to use that £2bn to pay for something that will eventually create more ££ in annual savings or extra government income than the interest that will be charged.

If the UK "went bankrupt" that would be effectively saying "we are no longer going to honour these debts". The fundamental outcome of which would be to destroy that credit rating - either we wouldn't be able to borrow at all, or would only be able to borrow at punitively high interest rates. That would mean everything grinds to a halt because having credit is vital for investment

You know that if this bridge is built the economic boost to the area will increase the tax income from that area by £X per year, so building the bridge at a cost of £Y will pay off in 5 years - so long as you can borrow £Y with an interest bill of less than £X per year. If you cannot borrow £Y, or can only borrow it with an interest bill of more than £X per year, you cannot build the bridge. Same gets played out for all kinds of investments in infrastructure and also social projects eg to reduce people's need of NHS services by making them healthier, or reduce crime etc. None of the work of government could fundamentally get done.

Assuming debts as a state, and having the power to tax the individuals and businesses that operate within that state, is fundamental to a functioning economy.

UK credit rating downgraded over time
The UK's credit rating has undergone several downgrades over the years, reflecting the country's fiscal challenges and economic performance. Here's a summary of the key downgrades:

• 2012: Moody's downgraded the UK's credit rating from AAA to AA1, marking the second tier for the first time since 1978.
• 1
• 2022: Moody's downgraded the UK's credit rating for the third time in eight years, citing deterioration in fiscal decision-making quality.
• 1
• 2023: The UK's credit outlook was downgraded to 'negative' by major agencies, indicating a lack of independent economic forecasts and fiscal policy consistency.
• 1
• 2024: The UK's credit rating was downgraded to AA with stable outlook by major credit rating agencies, reflecting the impact of the mini-Budget on financial markets.
• 1
• These downgrades have had varying impacts on the UK's borrowing costs and economic stability, with the government facing challenges in addressing its fiscal deficits and maintaining economic growth.

Well, we have gone to the IMF and the US in the past to bail us out. Would they do so again?

Under Cameron & Osborne the UK had a triple A credit rating, It's gone down to a double A now, not sure when it happened though, could have been under Boris or more recently..

Of course, the uk can go bankrupt. Any country can. Remember Iceland in 2008.

Thanks - your post was really helpful and informative. Just googled our credit rating to understand more and posted what I found for everyone to read.

So it seems that is progressively getting worse too.

That makes sense as well about repaying debt by printed money. I mean it's like admitting all is not well. So back in 2008 I remember the goverment printing money and buying back it's own bonds. Was that because nobody wanted our bonds then?

Yes you're right the UK went bankrupt in the 70s and Dennis Healy had to go begging to the IMF...

looks like just last year 2024 it happened.

So if this budget is tinkering and not fixing it by strong, radical decisions will we be downgraded again I wonder?

When we left Europe after Brexit we owed £39 billions as our commitments I think. Had we not paid that out credit rating around the world would have plummeted.

I'm sure I read or watched someone that said our debts were now such that the IMF wouldn't have enough resources to bail us out and that France would be first in line anyway. Not sure if that is true or not.

US - I'm not sure they would bail us out. Trump is still giving the nod to the UK but I think he sees we are no longer worth giving special treatment too. We are not useful enough or strong enough now. When did the US last bail us out? Was that during the war?

We're already bankrupt.

The problem is that the state/government, has become too big, too overbearing. The government runs the country as though we are it's subjects and our only function is to generate tax revenue to pay for its vanity projects.

We elect the government because we think it's there to carry out the administrative functions of "our" state.

We need to reach some sort of consensus.

It is possible for countries to go bankrupt.

it’s quite unusual for it to happen.

the U.K. has had many loans from the IMF in the post war period there is a list here.

https://www.imf.org/external/np/fin/tad/extarr2.aspx?memberKey1=1010&date1key=2025-05-31

the uk is very unlikely to go bankrupt.

The main thing I’ve picked up on IMF isn’t so much that they’d cover us for everything but they would impose stricter spending conditions to their loan.

Along those lines. It’s a way to get a country to re direct if politicians won’t do it but they need to.

No.

Covid caused a lot.

People thought it was a great big joke to be furlowed on full pay while the government paid your wages.

The government was paying everybody's wages whilst getting nothing in by way of income tax.

Many thought it was a joke.I wonder how hard they're all laughing now.

There is a consequence to no one paying tax whilst the government pays everyone's wages.

I was told I was mercenary for worrying about the economy more than lives. Thing is, if the economy tanks that affects people's lives too. Poverty kills.

Are we though?

Presumably at the moment they can keep borrowing each month to pay the bills.

I would have thought that when we can no longer do that it becomes a 'crisis' point.

Obviously the longer this goes on the worse things are getting but presumably as long as they can keep borrowing it keeps the wheel turning.

So perhaps if we get another downgrading in our credit rating (if the budget is not to the markets liking) then the ability to borrow might start to become more difficult.

I suppose that might mean higher rates on bonds which in the long turn makes it worse of course.

I just wondered at what point it would all 'stop' and would it be quick.

ie our budgets a disaster, so our credit rating is put down, our bonds stop selling and the IMF confirm they can't bail us out as it's too much debt.

I'm guessing that could all easily happen over the course of a week or two.

What does a bankrupt Britain actually look like? Are we talking long dole queues and houses getting repossessed or worse? (looting in shops etc)

interesting. I just wondered how it would work as I have read that the IMF could not afford to bail us out now as our debts are too big.

Also do they 'have' to bail us out. Can they just say no and leave us to it. (recognise we are a sinking ship sort of thing)

so surely unless RR/KS really produce a good budget showing the UK getting back to financial sustainability an IMF loan (with spending restrictions) is a real possibility for us?

I agree (hope) that it is unlikely but what makes you think it would be impossible?

From what I’ve read I don’t think it’s likely but I haven’t focused on it in any big way, so maybe others will have different answers.

yes one of the podcasts I watched last night said the bond yield had been inverted for a few years now and the only reason we hadn't gone into recession was because lots of people increased their savings during covid and since then been spending the extra money which has propped things up.

That is coming to and end now with people cutting back (or have gone through the extra money they got) and so we are only going to see the impact in the near future.

Can you remember the podcast name @HeMadeMeSwoon? Sounds interesting

I’m with @TheLivelyRoseon spending at that time but any talk of it met with outrage.

I think if it were to happen, there would be several countries willing to fund a bail out. At what cost though?

Think of it this way. My local supermarket had had empty shelves since Covid, some days whole Isles are bare. And it's the same in virtually every supermarket I've been in. Go to Ireland, or any EU country and its the opposite. We are the "boiled frogs", we don't see any different, so we think it's normal. It isn't.

If our "just in time" supply chains are "functioning normally" as we are being told they are. And they still can't keep on our shelves. Can you imagine what would happen if there were a disruption caused by monetary shock.

The 72 hour rule is standard operating procedure for disaster planning. So any disruption to our already insufficient supply chain would result in "food riots" in the street.

Beyond that, who knows . .