Bank of England’s Bailey tells governments to rebuild confidence in public finances

Governments need to redouble efforts to restore confidence in their public finances, Bank of England Governor Andrew Bailey said on Thursday, as global bond markets came under pressure^2,6. Bailey said governments needed to double down on showing they can repair their public finances¹¹. He argued that sticking to clear frameworks such as fiscal rules can guard against shocks, with the UK budget just weeks away⁴.

Bailey set out the mechanism as well as the warning. Low economic growth and a quick succession of supply shocks erode public finances, he said, citing Russia’s war in Ukraine and the conflict in the Middle East as examples of large shocks^9,10. The Telegraph reported the remarks as a warning that further damage to Britain’s credibility from rising spending could trigger a crisis, invoking the Truss episode ahead of the Budget³. Bloomberg framed the intervention as a call for fiscal credibility with debt pressures mounting before the UK budget and neighbouring France under strain of its own⁸.

Why it matters to investors

The market backdrop is doing the arguing. Medium-term borrowing costs for the UK government hit a 19-year high, part of a bond selloff that has intensified across big economies in recent days as oil prices have soared with no resolution of the Middle East conflict¹. That is the pressure Bailey described, and it is not confined to gilts.

A second message came from inside the rate-setting committee and cuts the other way. Monetary Policy Committee member Greene said it is dangerous for the Bank of England to continue relying on high bond yields to do its job of taming inflation⁵. In other words, the same yields that are punishing fiscal credibility are also doing part of the central bank’s tightening, and at least one policymaker does not want that substitution to become policy. Greene separately said the UK pay outlook worries her, with British employers on course to raise pay⁷.

What to watch

The Budget, now weeks away, is the near-term event⁴. Bailey’s test is explicit: whether the government sticks to clear frameworks and fiscal rules, or adds to the credibility damage the Telegraph says rising spending risks^3,4.

The second thing to follow is whether the selloff stays general or turns country-specific. Bailey’s own framing treats this as a problem for governments broadly, and Bloomberg pairs the UK with France^6,8. If the gilt move keeps pace with the wider selloff, it is a global rates story; if medium-term UK costs keep setting multi-year highs on their own, it is the credibility problem Bailey is warning about¹.