Is Britain going bankrupt?

The bond vigilantes are restive.

We are not yet facing a replay of the 1970s 'Gilts Strike', but we are not that far off either.

There is now a palpable fear that global investors may start to shun British debt as the budget deficit rockets to £118bn - 8 per cent of GDP - or charge a much higher price to cover default risk.

The cost of insuring against the bankruptcy of the British state has broken out - upwards - over the last month. Yes, credit default swaps (CDS) are dodgy instruments, but they are the best stress barometer that we have.

Today they reached 86 basis points, near Portuguese debt in the league table. For good reason. Alistair Darling has had to admit that the British economy faces the most sudden economic collapse since World War Two, and the worst budget deficit of any major country in the world.

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