Thank you for subscribing!

America's national debt has ballooned to a record $40trillion, roughly twice the level recorded just ten years ago

Britain faces a downturn far exceeding recent financial crises if American borrowing costs keep climbing through the remainder of 2026, according to a group of prominent City analysts.

A sell-off in US government debt would send shockwaves through the British economy, driving up mortgage rates and corporate borrowing costs while choking off growth in an already stagnant economy, they warned.

The UK's high debt-to-GDP ratio leaves it particularly exposed to any sudden repricing of US Treasuries, with contagion effects threatening to overwhelm the domestic gilt market.

Beyond hammering households and businesses, a bond market rout would also force the government to pay significantly more to service its own debt, heaping further strain on Britain's already fragile public finances ahead of Chancellor John Healey's maiden Budget.

America's national debt has ballooned to a record $40trillion, roughly twice the level recorded just ten years ago.

Last Thursday, investors at a $25billion auction of 30-year Treasuries demanded yields of up to 5.22 per cent, marking the steepest borrowing cost the US has faced on its long-dated bonds since August 2001.

That rate was considerably higher than yields seen at the equivalent auction held shortly before Donald Trump began his second term in office.

The widening gap between tax receipts and state expenditure has accelerated sharply since Trump entered the White House, driven by his sweeping tax cuts.

Efforts by the Elon Musk-led Department of Government Efficiency to claw back savings through reduced public spending have failed to offset the shortfall.

Roger Lee, head of equity strategy at Cavendish, described the potential fallout from a Treasury market collapse as "very bad" for Britain.

"A recession either as a result of first order effects of increased debt servicing costs or a fiscal consolidation forced by a gilts crisis would be likely," he told City AM, adding: "The economic pain in peripheral Europe and Asia during their debt crises was profound."

Helen Thomas, chief executive of Blonde Money, warned the consequences could dwarf anything seen during the UK's own gilt market turmoil.

"If fresh US bond auctions require higher and higher yields and lower and lower prices, there is the possibility the system will get clogged up," she said.

"That wouldn't just be a problem many magnitudes larger than the UK gilt crisis — it would have a knock-on effect to all financial markets."

The mounting turmoil in global bond markets is now bearing down on Mr Healey as he prepares for his 28 October fiscal statement.

James Sproule, chief economist at Handelsbanken, said events should compel the Chancellor to exercise "even more caution" at his first Budget.

"Healey will have to meet both the letter and the spirit of the 'golden rules'," Mr Sproule told City AM.

"Resist altering debt calculations, have debt to GDP falling by a per cent or more, show that we are moving rapidly down Reeves' planned deficit reduction pathway."

Until recently, anxieties over a sovereign debt crisis had centred on Britain's own gilt market, where yields have been under pressure from persistent inflation and prolonged political uncertainty.

America's dominance of global financial markets, however, means any upheaval in Treasuries would inevitably cascade through the wider system.