Mervyn King says Britain is less able to cope with a financial crisis than in 2008

Former Bank of England governor Mervyn King told a Lords select committee that Britain would be in a worse position to manage a future financial crisis than it was in 2007–08, citing a larger public debt burden and a rise in long-term borrowing costs.

King, who led the Bank through the 2008 global financial meltdown, said the recent rise in long-term UK interest rates — which have hit a 27-year high — had left the country "not in a comfortable position." He said the increase in rates had been broadly shared across the G7, but that did not lessen the domestic risks.

"Some people have drawn comfort from the fact that the recent rise in long-term interest rates has been true across the G7, and it has. But that simply means we're all in the same mess," King said. He added that while governments would likely be able to cope with another crisis, doing so would come "at a cost, with a much larger rise in the ratio of debt-to-GDP, and we would see interest rates go up to offset that. We're not in a comfortable position."

King's comments come amid market nervousness about the United Kingdom's fiscal trajectory after a period of political change and amid doubts about the governing Labour party's ability to balance the public finances. The rise in long-term yields followed wider global movements in bond markets, financial data show.

Bank of England Governor Andrew Bailey sought to downplay a UK-specific bond sell-off, saying it was consistent with a global repricing of long-term assets. Bailey and other policymakers have repeatedly emphasised the international drivers of recent market volatility while also monitoring domestic conditions closely.

Analysts said higher long-term yields increase the cost of government borrowing and can complicate monetary and fiscal policy responses in a downturn. King warned that a materially higher debt-to-GDP ratio would reduce fiscal headroom and make any future government interventions more expensive.

King contrasted the current situation with the period immediately before the 2008 crisis, saying the public finances and the Bank's position were stronger then. He emphasised that coping with another shock was possible but would be painful and costly for the economy.

The remarks add to a string of warnings from former policymakers and market participants about the combination of elevated public debt and rising global interest rates. Policymakers face the challenge of managing inflationary pressures, stabilising markets and maintaining confidence in public finances as they assess whether current borrowing costs reflect temporary adjustments or signal a longer-term repricing of sovereign risk.