Rachel Reeves is under pressure to cut spending as UK borrowing costs reach a 15-year high, impacting government financial strategies.
London: Rachel Reeves is feeling the heat as the UK’s borrowing costs have hit their highest point since the 2008 financial crisis. She’s looking at making some serious spending cuts if things don’t improve, especially since she’s already ruled out raising taxes or borrowing more money.
She’s also asked her team to come up with new ideas to boost growth and stop any measures that might hinder it. The goal is to improve living standards across the UK. We might hear about these cuts in her upcoming fiscal statement on March 26, which is part of a spending review that’s already asking departments to trim their budgets by 5%.
The situation is getting tense as yields on government bonds keep climbing. Just the other day, they went up to 4.89% for 10-year gilts, the highest since 2008. This rise in yields means it’s getting more expensive for the government to borrow money, which isn’t great news.
Later that day, the yields settled a bit at 4.82% when the London market closed. But the rising costs are causing some to worry, especially since they remind folks of the chaos that followed the mini-budget from former Prime Minister Liz Truss back in 2022.
With the cost of servicing government debt going up, it could really squeeze Labour’s financial plans. Isabel Stockton from the Institute for Fiscal Studies mentioned that the financial cushion is already pretty thin, so if interest rates stay high, Reeves might have to make some tough choices or break her own fiscal rules.
Stockton pointed out that if sticking to the fiscal target means raising taxes or cutting spending even more, it wouldn’t be a surprise if that happens. Reeves has already said no to both tax hikes and more borrowing after the significant increases in October’s Budget, leaving her with limited options.
On another note, the Conservatives are giving Reeves a hard time for planning a trip to China this weekend instead of staying in the UK to tackle the borrowing crisis. Shadow Chancellor Mel Stride called her “missing in action” and criticized her for sending her deputy to handle questions in her absence.
In response, Treasury Chief Secretary Darren Jones defended the trip, saying it’s crucial for UK trade. While Stride thinks the government is just trying to calm the markets in a panic, Jones insists that the bond market is operating smoothly.
He also mentioned that global factors are at play in the gilt market, and there’s no need for any emergency measures right now. It seems like government bonds are facing a sell-off worldwide, partly due to concerns about potential inflation from US President-elect Donald Trump’s tariff policies.
