The great British bull case

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Articles by Michael

Michael Biggs

Head of Macro Strategy

16 October 2025

It’s easy to be glass half empty about the UK economy. Public sector net debt is nearing 100% of GDP, and the Office for Budget Responsibility expects the tax burden to hit an 80 year high by 2027-2028. GDP has expanded by a meagre 1.3% annually over the past 20 years, labour productivity growth has collapsed, and the recent increases in minimum wages and employer national insurance contributions cast doubt on the economic outlook.

But here’s the glass half full angle. Whilst public sector finances look shaky, private sector balance sheets could drive an economic rebound. How?

We believe one of the key drivers of the business cycle is changes in new borrowing by the non-financial private sector (households and non-financial businesses).

The private sector borrows to spend. When borrowing rises, spending increases and the economy grows. After a recession (eg the early 1980s and 1990s), households and firms are generally cautious, and new borrowing is low. So it doesn’t take much optimism for new borrowing to pick up. As the economy stabilises and confidence returns, the private sector borrows more and spending increases. GDP growth strengthens, which in turn boosts confidence and borrowing.

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When new borrowing is already high (1989, 2007), it takes extreme optimism to push it higher still. When spending has been strong for some time, imbalances start to show in the economy, often in the shape of rising inflation. A rate hike to curb inflation can easily trigger a fall in new borrowing from these elevated levels, reducing spending and tipping the economy into recession (the shaded bars).

This account of the business cycle proved an excellent description of economic developments from 1965 to 2008. But, after the great recession in 2009, new borrowing increased only slightly and stabilised at historically low levels. Hence there was no robust rebound in growth.

Today, the bull case is that an increase in new borrowing could boost demand and kick-start a recovery. But why would it pick up now, after lying dormant for 15 years? We can think of three reasons.

Firstly, new borrowing has been so low since 2008 that economic growth has outpaced growth in debt. Households’ and firms’ debt relative to GDP has fallen by around 50 percentage points. At some point, the private sector will believe its balance sheets have improved enough to borrow more. And new borrowing is so low that it can rise without debt outpacing GDP.

Secondly, the initial increase in new borrowing is often triggered by interest rate cuts. Policy rates were near zero from 2008 to 2022, so the Bank of England could never cut rates to stimulate new lending. Today, interest rates are much higher. The one percentage point of rate cuts since late 2024 already appears to have boosted new borrowing, and we expect further cuts from here. One additional rate cut is already reflected in market pricing, and more could follow if inflation declines.

Finally, new borrowing could be boosted by bank deregulation. Introducing bank regulations after 2008 made sense given the excessive borrowing in the 2000s and the resulting economic devastation. But the low levels of credit creation in the 2010s suggest the regulations are too tight. A modest deregulation could boost credit growth.

The weakness of the UK’s public sector balance sheet is well known and is likely already reflected in asset prices. However, the strength of the private sector balance sheet is less well understood. If any of the above factors triggers a rise in private sector new borrowing, the positive GDP growth surprise could provide a welcome tailwind to UK asset prices.

Articles by Michael

Michael Biggs

Head of Macro Strategy

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Piers Wheeler

Director – Institutional

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Developing and executing asset management strategy for capital raising and strategic relationship management. Coverage includes EMEA, Asia and Australia. Piers joined Ruffer in 2021, having previously worked with asset management firms including Eastspring, AMP Capital and LEK as a strategic consultant. He holds a MA from the Bayes Business School and a BA (Hons) from the University of Oxford.

Annabel Paterson

Senior Associate – Institutional

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Joined Ruffer in 2021, having graduated with a first class honours degree in land economics from the University of Cambridge. After two years working with the UK Private Wealth team and completing her IMC and CFA Level I qualifications, she now supports Ruffer’s global business development and client servicing efforts.

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