Because the UK government is politically unable to pass necessary fiscal reforms, a bond market crisis is now the most likely catalyst to force the essential but painful spending cuts required to stabilise the nation’s finances, say Peter Siller and Emma Moriarty

In the aftermath of the euro area debt crisis, Jean-Claude Juncker, then Prime Minister of Luxembourg and subsequently President of the European Commission, summarised the dilemma for politicians as: “We all know what to do, but we don’t know how to get re-elected once we have done it.”

The same words now ring true in UK politics. The recent government U-turn on welfare reform highlighted this point. One of the most significant issues facing this government is rising interest costs against a backdrop of spiralling debt. Central to their response has been to try to cut day-to-day spending to make room for investment spending, to kick-start growth.

The fact that the government was unable to pass such an important set of reforms suggests that the Prime Minister has no effective majority. In this respect, the UK situation is more extreme than Juncker’s: the Prime Minister and Chancellor know what they must do but cannot get the required legislation through parliament. This is a difficult situation to be in. The behaviour of yields on........

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