Bank of England's Bailey cautions that structural pressures may lead to an increase in government debt

Bank of England Governor Andrew Bailey cautions that structural pressures, such as low productivity and an aging population, may lead to increased government debt.

Bank of England Governor Andrew Bailey has cautioned that persistent structural pressures and significant economic shocks may continue to drive up government debt and borrowing costs in advanced economies.

Speaking at a conference organized by the London School of Economics’ Trium MBA program, Bailey remarked that economies were encountering “very, very substantial challenges” that could increase pressure on government finances.

He recognized low productivity as a significant factor in the growing public debt while also observing that substantial economic shocks, such as the COVID-19 pandemic, had further intensified the strain on governments.

Bailey highlighted the challenges posed by aging populations and the increasing demands for higher defense spending that governments must navigate.

Bailey explains that these developments clarify the pressure on bond markets, where investors have increasingly sought higher returns for holding government debt.


Government bond yields have increased significantly recently, with Britain’s 10-year borrowing costs hitting their highest level in nearly two decades earlier this week. Longer-term yields have risen to their highest level since 1998.

Bailey was part of the majority of the Bank of England’s Monetary Policy Committee who voted in July to maintain the current interest rates, as policymakers sought clearer indications of the Iran war's effect on long-term inflation.

On Friday, markets estimated a roughly 10% chance of a 0.25 percentage-point interest rate increase at the MPC’s upcoming meeting this month, while the likelihood of a hike at the subsequent meeting in November exceeded 60%.