Transcription
Hi, welcome back to Joe Blogs. In today's episode, I want to talk to you about the ongoing crisis in the UK economy because the UK is currently suffering from low productivity, low growth, high debt, increasing interest costs, rising inflation, and there is a very real risk that the UK is now heading into a period of stagflation.
Now, if you've been following the channel, you'll know that I recently reported a video talking about the fact that bond prices, the yields in the UK, had got to a record level for the last 28 years. 30-year guilts, as they're referred to in the UK. And a lot of people pulled me up on that and said, "What's a guilt? Why is the UK issuing guilts rather than bonds?" Well, this is an old term that relates back to the 17th or 18th century when UK bonds were issued with a gold edge down them. They were guilt-edged. And so they started being called guilts because they were basically guaranteed by the UK government. And back in those days that was seen as being a cast iron certainty that you'll get repaid. Not so sure it's as cast iron as it was then today.
But if we see from this chart that the current 30-year bond or guilt yield is now above 5.5%. And if you look at the shape of this chart, you can see that over the last 5 years, there has been a rapid increase in bond costs in the UK from less than 1% back in the COVID pandemic period to where it is today. And one of the key problems for the UK government right now is the rapid increase in bond prices over the last 12 months since they took over as the governors of the country back in July of 2024. And it's just been reported that the UK has issued 14 billion pounds worth of new bonds, guilts, whatever you want to refer to them as. And the price of those bonds was set at the highest level since 2008. And as basically the 4.8786% yield had a premium of an additional 8.25 basis points attached to it to encourage people to take the debt. So UK debt is getting more expensive and this is a problem for the UK because the productivity is lagging behind the rest of the world.
This chart shows the productivity increases in the UK dating back to 2000 and you can see that between 2001 and 2007 productivity was growing on average at 1.8% per year. We then had the global financial crisis in 2008. Obviously everything went out of the window for a period of time and then between 2011 and 2019 productivity increased at 0.4%. So that was basically four times less than it had been in the previous period. And then since the COVID pandemic the productivity in the UK has actually fallen further to 0.3%. And the reason why productivity is such a big issue because this we're talking about the how much is produced per hour of work. So how productive are UK businesses being? The reason why it's important is that it links in to GDP, gross domestic product.
And this chart shows the annual growth rate in gross domestic product in the UK over the past 3 years. And the key thing here to look at is what's happening now. So you can see that in the fourth quarter of 2024, GDP got up to its fastest growth rate since 2023. It was growing at that point by around 1.4%. However, in the past two quarters, we have seen a steady decline. It came down to 1.3% in the first quarter of 2025 and is the most recent figures were 1.2%.
And in terms of how does that compare to everybody else in the world? Is this a global trend? Well, this chart shows the current GDP growth rates for the G20, which are notionally the 20 largest economies in the world. And you can see that India is right at the top of this list, 7.8%. So that's pretty impressive. Argentina. Interestingly, if you follow the channel, you'll know that we've been covering Argentina for the past few years, and it's got some serious economic problems that the current leader, Javier Milei, is trying to sort out, but its productivity in the most recent recorded figures is up to 5.8% compared with 2.1% in the previous period. So, a massive increase in GDP in Argentina. China's at 5.2, Indonesia 5.1. And then if we look down this list, you can see the United States is sitting about halfway down at 2% increase in GDP. Australia is 1.8, the Euro zone on average 1.5, Canada 1.2, and you can see that the UK is also at 1.2% and is further down this list. But it's actually doing better than some countries. You can see down the bottom we've got Italy at 0.4, for Germany at 0.2%. Some real problems in Germany right now and Mexico at 0%. So that's a problem particularly because of all of the tariffs that are now in place on trade between Mexico and the USA. But the point of really showing this chart is to show where the UK is ranking. And you can see that it's in the bottom half and it's actually towards the bottom of the bottom half.
And the reason why GDP growth rates are important is because we're looking at what the ratio is between how fast the economy is growing and how much debt it's got. And this chart shows government debt to GDP ratios for the G20. So how much leverage each country has taken on. And you can see that right at the top of this list is Japan with an eyewatering ratio of 237%. So basically it's got more than twice the amount of debt than GDP that it's producing. So that's quite serious. Second on this list is Singapore. Number three is Italy. Interestingly, the United States is at number four with 124% ratio. So more debt than GDP. France comes in at number five, Canada 6, Spain 7, and the United Kingdom is number eight on this list with a ratio of 95.9. So less than 100, which you might think is quite good, but we'll have a look in a moment at what's happening with the speed of change of that, and you'll see that it's not good news for the UK.
But just having a further look down this list, I'll pick out a few others. Germany has a ratio of 62.5%, Mexico 49.7. We just looked at its growth rate. And then right down the bottom, we've got Turkey at 24.7. That's interesting because we've talked a lot about Turkey. Turkish economy is struggling. However, it doesn't have a lot of debt, but unfortunately, it doesn't have a lot of GDP either. And Russia is right at the bottom at 16.4. Russia historically hasn't taken on a lot of debt. And at the moment, it would be virtually impossible for Russia to do so because nobody would buy those bonds.
Now, having a look at what's been happening over the past 5 years, this chart shows the change in the ratio between GDP and debt. And what this shows is that the UK is increasing its debt relative to its earnings faster than any other country in the G7. And the G7 is are these seven countries that are historically were the seven largest economies. Um not so much anymore because obviously China is not represented here. The second fastest growth in debt to GDP has been in France at 16%. The USA comes in at number three at 15.5. Germany 7.9, Italy 3.7, Canada 3.2, and then interestingly, you can see that Japan has been reducing its ratio, but it's still number one in the world. So, it's got a long way to go before it comes back in line with everybody else.
Now, that's the problem for Labour in terms of GDP is not growing at the same rate as debt. So, it's taking on more debt and that debt, as we've just talked about, is becoming more expensive. So, that's putting pressure onto the budget. But one of the other things that Labour has done since it came into power is that it announced a number of policies and said that it was going to remove some benefits that were currently in place that were going to save over £6 billion. However, due to the lack of popularity of those decisions, they've then reversed their statements. So you can see here that at the time when they came into power they said that they were going to tighten the eligibility for personal independence payments (PIPs) and universal credit. So these are basically ways of people on low income getting some more cash from the government and by changing those rules they were going to save £5 billion. They subsequently decided that it wasn't going to work and so they scrapped the policy. So that left a £5 billion pound black hole in the Labour budget. And in addition to that, they were also going to restrict the winter fuel payments that are paid to pensioners and reduce the amount of people who are eligible. And that was going to save £1.25 billion. That was also reversed when the government came into power.
Rachel Reeves, who's the Chancellor of the Exchequer. So she's in charge of all the financial policies and decisions. She said that by 2029-30, so by 2029, the UK government would have its books balanced. So it would be raising enough in tax to meet all of the spending and therefore would not need to take on any more debt. So basically, it would be paying its own way. This chart here shows the fiscal margin. So it says how much headroom she had in that budget and you can see that in 2024, the green section right on the far right-hand side, she had around £10 billion of headroom and when you look back over the last 15 years you can see that that was actually one of the lowest levels of headroom that any chancellor had had. So this was going to be a really tight budget. She needed to stick to all of the numbers to be able to deliver it.
Now, obviously, we've just talked about the fact that £6.25 billion was taken out very quickly because the policies she introduced were then subsequently scrapped. And you can see that now the policy reversals and everything else, what's happening with the increase in the debt, the increase in the debt costs, and the reduction in productivity, she hasn't got any headroom at all. So, she's already blown through the £10 billion that she was previously penciled in. And that's a major problem because she now is facing a £35 billion shortfall.
Now, there's a new budget being announced on the 26th of November and it's extremely likely that taxes will need to be increased to fill that £35 billion black hole. And this table shows that the UK tax burden at the moment. So what people are paying in terms of tax is at its highest level for 70 years. So it shows that in 2025 it's sitting at around 35%. However, the forecast by the Office for Budget Responsibility is saying that that's going to increase to 38% by 2030. So that would be by far the highest level since the 1950s. So we've got some serious issues that are already in play in the UK.
But things have just got worse because the cabinet has had to change again. Keir Starmer, who's the Prime Minister, his right-hand woman, the Deputy Prime Minister, Angela Rayner, has just resigned. The British Labour government is in disarray after the Deputy Prime Minister resigned over a tax scandal. Angela Rayner failed to pay the correct amount of property tax on an apartment she bought earlier this year. She was also the housing minister. It has prompted a cabinet reshuffle and another headache for the UK's increasingly unpopular centre-left Prime Minister Keir Starmer.
Now, that's interesting that Angela Rayner has resigned over a mortgage issue and buying a property and not paying enough tax because this has similarities to what's happening in the USA at the moment whereby Donald Trump tried to fire Lisa Cook, who's a member of the Fed, for basically claiming that she was living in more than one apartment at the same time and was claiming reduced mortgage rates. So very similar situations, but what we've seen here is the person who's second in command and a very high-profile politician in the UK has now left the cabinet.
And I thought there's a lot of talk about the cabinet. And I don't think many people understand what the cabinet is. This is actually another old term from UK history whereby old kings, I think it was James I, used to meet with the government in a room that was designated because it was a small room in his palace and so it started being cabinet meetings and so the term cabinet was then raised and it stuck with the government ever since.
This list here shows the current cabinet positions. So you can see there are 23 different positions that are designated as cabinet in the UK and what these are are basically the heads of various departments that are important for the UK economy. So you can see Prime Minister obviously is the leader. We've then got Chancellor of the Exchequer, which is Rachel Reeves, who's in charge of all of the finance, Foreign Secretary, Home Secretary, Defence Secretary, Health and Social Care Secretary, Education, Business and Trade, Work and Pensions. So you can see there's lots of different important roles here. And the reason why I'm showing you this of the 23 roles, the ones at the bottom, so 19 to 23 are actually functional. So Leader of the House of Commons, Leader of the House of Lords, Chief Whip, Chancellor of the Duchy of Lancaster, and Attorney General for England and Wales. They're actually just jobs that relate to the House of Commons, the House of Lords, being the chief lawyer, those sort of things. So, we've got 18 roles in the cabinet that have to be appointed by the Prime Minister.
And in terms of what the current situation is, well, Keir Starmer has just changed 12 of those 18 roles. Following Angela Rayner's resignation, he had to appoint a new Deputy Prime Minister, which then left another role vacant. And so, he's shuffled all the people around. He's taken some people out. He's put some new people in. But the reason why I wanted to highlight this is that if you were running a company and you had 18 departments, let's say you had 18 different markets that you were covering in your company and you had people who were the head of all of those different departments. So you had 18 really key senior members of staff, you wouldn't really come into work one day and suddenly decide to change 12 out of the 18. It's basically two-thirds of your staff. You suddenly decide I'm not happy with you. You change with him, you change with her, she can do this, you can do that. You're fired. Bring somebody else in. That would be a complete upheaval of your business. You would only probably really do that if you were coming into a new company. So, let's say they fired the chief executive, they put you in from outside the company. You might bring some of your own people in. You might decide that you wanted to change the way things were done. But that would be a major change. That is a complete radical shake-up of your business. And that's exactly what's happened in the UK. Keir Starmer has changed two-thirds of his most important politicians. And these are people who are putting long-term policies into place. They're deciding on things like long-term education ideas, what's going on with defence, what's happening with infrastructure, but all the all the really key important decisions that have to be made by people who are leading the country. He's just changed all of the people in a lot of these roles. So, this tells us that there are some serious problems right now. If you're having to change all of your key people, then maybe those key people weren't very popular or you just don't feel like they were good enough to continue with the job.
Now, in terms of what's going on with popularity, Ipsos is an independent firm that takes polls in the UK and all around the world, in fact. Um and they've been doing some polls recently to talk about what the current thinking is in the UK and they've just published this. You can see this chart shows the popularity of the different parties in the UK. If we look at the red line which is Labour, so the current leaders, you can see that back in July 2024 when they won the general election, they were at the top of this list, they had popularity somewhere in the region of 40%. So 40% of the people in the UK wanted Labour to run the country. If you look at what's happened over the last 12 months or so, you can see that that 40% number has reduced to 25%. So that tells us that 75%, the majority, don't want Labour to be running the country. And it's interesting that the two parties that have overtaken Labour are the Green Party that historically in the UK have had very little presence, a very small number of members of parliament, but they're now overall more popular than Labour. And the most popular party is Reform UK. And if we look at that light blue line, you can see that that party only actually started in February 2023. This is Nigel Farage, who's quite a high-profile MP. Uh, he's had some dealings with Donald Trump. He appeared on a number of Donald Trump rallies. So, you can see that that's a relatively new party, but it's now the most popular party in the UK, 34%. So, a third or more than a third of the UK people would like Reform UK to be the leaders of the country.
Now, there isn't a general election that's due until 2029. When you voted into power, you get 5 years, but it might come earlier than that if things continue going badly for Labour. And if we look at what this means for Keir Starmer, who's the leader of Labour, uh his popularity, we can see that uh back at the time of the election in um well May-June 2024, he had um he was basically seen to be favorable by around 40% of the UK population. Since that time, his popularity has plummeted and now only 22% of the population are happy with him and 54% have said that they are not happy with him. So that's more than half. That's not good news if you're running the country.
If we have a look at Rachel Reeves, who's the Chancellor of the Exchequer, she's in charge of all the financial and taxes and all of those very hot political topics. You can see that back at the time of the election, she was nowhere near as popular as Keir Starmer. So she had a popularity rating at that time of around about 25% and a similar number of people did not like her. Well, since she's taken over, her popularity has plummeted to 16% and her unpopularity, so people who say they are not favorable towards her being in charge of taxes, it's 53%. So again, over half.
If you look at Nigel Farage, who's now the leading candidate to be potentially the next Prime Minister of the UK, well, it's an opposite for him. Back in January 2024, he had a favorability rating of 20%. That's now up to 31%. And people who didn't like him, it was 50% back in January. That's come down a little. So, he is definitely growing in popularity.
Now, I thought it'd be interesting because Ipsos have actually asked people in the UK about Donald Trump. So I thought it was interesting to have a look at that. So you can see popularity ratings here how they've moved and currently 23% of people in the UK are have a favorable attitude towards Donald Trump and 59% unfavorable. If we look at the split on that in terms of by age, you can see that actually the younger people 18 to 34 have a better opinion of Donald Trump. 33% are favorable from that age group. And in terms of the older people, the 55 plus, only 18% are favorable. And if we look, interestingly, at the voter split, you can see at the bottom, 49% of people who voted for Reform UK at the last election are favorable towards Donald Trump. And the reason why I think that's interesting is that there's a lot of comparables between Nigel Farage and Donald Trump. There's a lot of policies and a lot of things that they've said that are of a similar mindset. So, it's interesting that as the economy gets worse and as the current leaders continue to do a bad job in terms of delivering the numbers that politicians similar to Donald Trump is growing in popularity right now in the UK.
So, what's the summary and conclusion today? Well, I wanted to post this video because I've been talking about the UK on and off over the last few years, but in the recent video that I posted, I asked people to actually give me feedback as to whether or not you wanted to see me making more videos on the UK. And there was a resounding yes from that video, and lots of people subscribed. If you haven't subscribed already, please hit that subscriber button now because I'm looking to increase the subscriber numbers. It helps me with the algorithm and just basically makes me feel a bit happier. Anyway, so the reason I've made this video today is a follow-up to the bond crisis video that I made recently and the UK government is currently in a state of complete crisis because as I've discussed, we've seen two-thirds of the leading people, the cabinet being changed over the course of the last few days and this tells us that things are not going well. Don't take somebody out of their job and replace them with somebody else unless you believe that they're not doing what they should be doing. They're not delivering.
So, we're seeing that in the numbers. We're seeing low productivity. It's been going on for a long time. So, I don't think we can entirely blame what's happening in the UK on the current government because productivity has been in the doldrums for the last 10 years or so. Since the global financial crisis, the UK has struggled to deliver more productivity than it was previously. So that's a major issue. And what that's doing is reducing the growth in GDP. GDP is now slowing down at the same time as debt is increasing both in size because the UK government has left itself a black hole and that black hole is getting bigger. So, it's constantly having to borrow more money, but also the cost of the existing debt is continuing to rise. And as all of the old bonds or guilts as they're referred to in the UK come up for renewal, they're having to be replaced by more expensive bonds. So, that's increasing the amount of debt interest that the UK government is having to pay at the time when all of its earnings are reducing.
And what this means is that the forthcoming budget that the government has set for the 26th of November, it's extremely likely, in fact, a certainty that taxes will be increased rapidly. They're going to have to find at least £35 billion, if not £40 or £50 billion to cover the increasing debt costs in that budget. So, we are going to see some tax hikes. That's likely to reduce the popularity of the government and Keir Starmer and Rachel Reeves even further than it is right now. And that popularity rating is plummeting already. And we may find that if the UK continues to struggle as it is at the moment, that it suddenly goes into a period of stagflation because we've got persistently high inflation, it's significantly more than the 2% target rate from the Bank of England. The Governor of the Bank of England recently came out and said that he's unsure whether there'll be any more rate cuts because of that rising inflation. So what we could see is higher interest rates at a time when we've got higher inflation and lower growth. And that equals stagflation, a stagnant economy with inflation on top. And that's going to be extremely difficult to fix for the government. So their popularity is likely to continue dwindling. And all of this is pointing to potentially an earlier general election than 2029 because the people won't be happy. Starmer may not survive until that time. And if that happens, then we could have an earlier general election which at the moment is being led in the polls by Reform UK, a brand new party being led by Nigel Farage, who's seen as being the UK's equivalent of Donald Trump.
So, there's some really interesting things happening in the UK and I'll post more videos on this if you give me the likes and drop the comments and tell me that you want to see more of this sort of stuff. So, thank you for watching this video all the way through to the end and thank you so much to everyone that's supporting me. If you bought me a coffee or sent me YouTube Super Thanks or signed up as a patron or a YouTube member or buy me a coffee member, thank you so much for that long-term support and here's something to put a smile on your face.