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Both the US and UK have recently made major moves that loosen their fiscal policies. Our overview of developed markets puts these developments in context -- showing how both countries' longer-term fiscal situation appears precarious compared to their OECD peers.
American lawmakers recently passed President Trump's "One Big Beautiful Bill" (OBBB), whose provisions include extending the 2017 tax reductions. In Britain, Chancellor Rachel Reeves was forced to reverse planned welfare cuts after a political backlash.
Our chart compares 2024 national debt-to-GDP ratios, budget deficit-to-GDP ratios, and sovereign credit default swap (CDS) spreads — a market-based measure of the cost of insuring against sovereign default.
The US, UK and France stand out with their notably large deficits. Unlike Japan, where total debt is exceptionally high but mostly domestically held, about a third of UK government bonds are owned by foreign investors. (Switzerland stands out as a paragon of fiscal rectitude: not only is its CDS spread the narrowest and its total debt burden the lowest on our chart, it's the only nation to run a fiscal surplus.)
The US, meanwhile, has seeing its sovereign CDS spread creep higher. Only Italy and Greece - which defaulted on its debt just a decade ago - are perceived as riskier by this metric.
This convergence, once unimaginable, underscores how markets are recalibrating their views on US government finances and trade policy uncertainty. The wider CDS spreads have coincided with President Trump's disruptive tariffs and rhetoric on international trade.
According to the Congressional Budget Office, the OBBB is projected to increase deficits by USD 3.4 trillion and push the publicly held federal debt-to-GDP ratio to 124% by 2034. Looking at the composition of US federal government finances, individual income taxes account for half of total receipts. However, the extended tax cuts under the OBBB are expected to erode revenue collection over time, and the anticipated economic boost is unlikely to fully offset the losses.
While customs duties have surged in recent months due to Trump's tariffs, they still contribute only a small share of overall revenue. On the spending side, the bill includes proposed cuts to Medicaid, food assistance (SNAP), and student loans, while expenditures on national defense, border security, and interest payments are expected to rise — worsening the long-term fiscal outlook.
In Britain, meanwhile, Reeves' reversal led to a sharp rise in long-dated gilt yields on July 2 -- extending the trend seen since the Labour Party took office a year ago, even as the Bank of England started cutting rates.
Higher bond yields would increase debt servicing costs for the UK, as our last chart shows.
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