Labour dices with Gulf disaster as Britain faces an financial disaster: ALEX BRUMMER

Governance in Britain is presently intensely focused on tomorrow’s local and regional elections and on an endemic anti-Semitism crisis which challenges a national tradition of tolerance.

But while eyes are diverted by domestic politics and race relations, a seismic global economic crisis is in the making.

The UK is particularly exposed because of our open trading economy and failure, by successive governments, to invest in energy security such as gas storage.

Labour’s stewardship of the country has ingloriously failed to deliver the ‘securonomics’ promised two years ago. 

Despite £75billion of tax increases, the nation’s debt-to-output ratio stands at close to 100 per cent and the country will spend a projected £107billion on interest payments in the 2026-27 fiscal year. 

That is a bill that keeps on rising. Gilt yields, the return on British government bonds, are the highest among the G7 economies. 

The ten-year yield is close to its steepest level in two decades and the 30-year bond yield touched 5.79 per cent, a borrowing cost not seen since 1998.

At the International Monetary Fund’s (IMF) spring session a month ago, there was a chilling warning that if the conflict in the Gulf were not resolved speedily, then the world economy would face a profound shock. 

Equity markets chose to ignore the perilous outlook, focusing instead on the Silicon Valley AI revolution and America’s energy self-sufficiency.

The latter is not protecting Middle America from surging motoring, heating, and air conditioning costs weighing heavily on US household incomes and spending.

IMF managing director Kristalina Georgieva normally seeks to be a soothing voice. She is now warning that if the global oil price, at $110 a barrel, should hit $125, then the worst-case scenario in the IMF’s latest world economic forecast will become reality. 

The ‘severe’ forecast envisaged headline inflation of 5.8 per cent and global output increasing by just 2 per cent. Fund analysis shows 2 per cent or lower signals global recession.

China in recent times has been a bulwark against global meltdown. It is suffering serious collateral damage from Donald Trump’s lack of an exit ramp from the Middle East. 

Some 40 per cent of Beijing’s energy is sourced through the Strait of Hormuz. Higher oil prices are damaging to Chinese factories that are so dependent on churning out cheap exports.

Britain was seen as an outlier by the IMF in April with growth forecasts for this year cut by 0.5 percentage points to 0.8 per cent and inflation elevated at 4 per cent towards the end of the year. 

Those forecasts now look wholly outdated and there are real questions as to whether the Bank of England will be able to hold bank rate at 3.75 per cent much longer.

A complacent and hapless government, led by Keir Starmer and Rachel Reeves, is proving totally oblivious to the gravity of the 1970s-style catastrophe the country now faces.

Private grief

The popular narrative among bank enforcers is that global lenders are so well capitalised that histrionics in less regulated private credit markets will not affect their safety. 

That is almost certainly the case at HSBC and US behemoth JP Morgan. Yet we know from the way Credit Suisse collapsed three years ago that no banks are invulnerable.

HSBC reports a ‘fraud-related’ potential loss of £300million. The complexities of the write-down relate to a credit with an arm of hedge fund Apollo. 

That exposure reaches back to the collapsed London-based mortgage lender Market Financial Solutions. Its dodgy lending has already cost Barclays dearly.

With private finance, as with mortgage-backed securities in 2008, you never know where the bodies are buried.

Right number

Vodafone’s chief executive Margherita Della Valle deserves plaudits for doing the simple things well.

Under-performing networks in Spain and Italy were sold, and Della Valle patiently navigated her way through the regulatory forest to conclude the £16.5billion merger with CK Hutchison’s Three.

She has now managed to buy out Hutchison’s 49 per cent stake for £4.3billion, which looks a good price. Voda’s shares have sprinted 60 per cent in the last year, a relief for long-suffering investors.

True victory will come if and when Germany is fully turned around.