This is with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

Something huge is happening on the world’s financial markets and it will have a profound impact on all of us. It’s the rise in bond yields – the rate of interest paid when a government, company or other organisation raises money by issuing new debt. They have shot up over the past few weeks and show every sign of climbing higher still.

So when our Government wants to borrow for 10 years, it now would have to pay interest of around 5.25 per cent. That’s the highest since 2007. And if it wants to borrow for 30 years, the rate would be nearly 5.9 per cent, the highest since 1998. It’s a similar situation for other governments, though they don’t have to pay quite as much as we do. For the US, the equivalent numbers are about 4.8 per cent and 5.3 per cent. Even Germany, which can borrow relatively cheaply, the rates are 3.4 per cent and 3.8 per cent. In every case, these are the highest rates for nearly 20 years, and because governments have to pay more, that means everyone else does too.

There are three reasons why this is happening.

One is that would-be lenders do not trust the ability of the central banks to get inflation down to their target of 2 per cent. If they did, lending at 20 years at 5 per cent would seem a good proposition, for it would be a 3 per cent real return. But if, as they fear, inflation may average 3 per cent or 4 per cent over the next decade, that return shrinks. And if inflation were to be more than 5 per cent, they end up losing money.

The second is that governments are running large budget deficits, which add to their already huge piles of national debt. And they seem unable or unwilling to cut their spending or increase taxes – the essential steps needed to cut those deficits.

And the third is that there are lots of other would-be borrowers, especially US companies seeking to finance their investments in artificial intelligence, who are also competing for the pool of funds that are available from would-be investors.

What does this mean, first for Andy Burnham’s new Government, and then more importantly for the rest of us?

The brutal truth for the Government is that it cannot increase its borrowing, and probably has to cut it. The UK already has to pay more than any other major economy, and for Chancellor John Healey simply to stick to former chancellor Rachel Reeves’s fiscal plans would not be enough to narrow that gap. There’s no point in trying to blame the Tories for this situation. For most of the Conservative government’s term of office, including the week of the general election in 2024, UK borrowing costs were actually lower than those of the US.

So it’s not simply a question of Andy Burnham finding it impossible to find the money to finance his plans for the state to take over parts of the private sector. Come the Budget on 28 October, there will have to be some combination of higher taxes and cuts in spending. How they do that is a political choice, not an economic one, but my bet would be one of the big commitments they will drop will be the triple lock on the state pension. Existing pensioners may be protected, but if you are under 50, I would not build your retirement plans around it surviving until you qualify. After all, at the last election the only age-group where the Tories led Labour was the over-65s.

What the Government does, of course, affects us all. But this bond market turmoil will have a profound impact quite apart from the decisions of this Government and indeed of the administrations that follow it. The only sensible assumption is that it will be relatively expensive to borrow money for the next decade and probably beyond – until inflation comes down to below 2 per cent and looks set to stay there.

So mortgage rates will remain high, and that will impact property prices. That is not to suggest there will be a crash in values, though inevitably there are some dangers of that. It is to say that another property boom is unlikely for some years to come, and that would-be borrowers should make sure they can manage to fund these higher rates. The flip side of that is that bank and building society interest rates will also remain reasonably high, though savers have to make allowance for the fact that inflation will continue to whittle away the real value of their savings. The general rule will be that everyone should be careful with their money, borrowing only to buy real assets rather than to finance current spending.

There is also a possibility that these higher bond yields will trigger some sort of global downturn within the next five years. It is impossible to predict how the world economic cycle will unfold except in the most general terms. But we know enough from the past to be aware that recessions do happen and that a surge in interest rates is often associated with that.

Above all, I think we just have to recognise that higher interest rates are the new normal. We have to be disciplined when we borrow. Not hair-shirt, just sensible – which in a way may be no bad thing.

Need to know

The best template for this surge in bond yields is what happened in the eurozone crisis that ran most strongly from 2010 to 2012. You may remember that a number of countries saw surges in their cost of borrowing and needed a bailout from the EU. These included most notably Greece and Ireland, but also, less dramatically, Spain and Portugal. There’s a good summary here.

All have now recovered, Ireland particularly strongly, but the scars still linger a decade and a half later. The Greek population peaked at over 11 million in 2010, while now it is 10.4 million. Between 2008 and 2016, the economy lost one-quarter of its GDP, and unemployment hit a peak of 27.7 per cent in 2013. Even now the economy is smaller than it was in 2007.

Italy’s living standards are also lower than they were 20 years ago. So, along with Greece, those are the only two countries where living standards have fallen – the UK, by the way, has not done well, with an increase of only 7 per cent in GDP per capita since 2007, and while that’s a little better than France and Canada, it’s worse than Germany and particularly Australia and the US.

So I suppose the question we have to ponder is whether we are likely to be a Greece or an Italy over the next couple of decades, or an Australia or a US? Much will depend on how we respond to these pressures. Carrying a big load of debt in a time of higher interest rates is not a great idea. Creating a more flexible economy, as Ireland has done, is a very good one. That applies to countries, but also to people in their daily lives. So be flexible in how you earn money, and don’t borrow too much. Sounds sensible, put like that, but not at all easy to achieve.