Reeves ‘right to go to China’ as pound slumps again
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There is a “high chance” that Rachel Reeves will be forced to announce emergency spending cuts this spring as borrowing costs surged again on Friday. Soaring gilt yields mean the Chancellor’s fiscal headroom is “gone” and it is becoming increasingly likely that she will have to announce either cuts or tax rises to convince markets that she has borrowing under control, Barclays has warned.
The bank’s UK chief economist Jack Meaning said that, unless borrowing costs fall before the Office for Budget Responsibility (OBR) revises its forecasts for the public finances on March 26, “there is a high chance that the Chancellor is forced to make fiscal adjustments”.
He added: “We continue to think spending cuts are more likely than tax increases, but it is highly uncertain.”. A forced intervention would be a massive blow to Ms Reeves’s credibility after her manifesto pledge that she would hold only one Budget each year.
The warning comes after days of market chaos in which yields on 30-year government bonds hit their highest level since 1998, driving up the Treasury’s debt interest bill and eroding all of the tiny margin by which Ms Reeves was expected to meet her Budget borrowing targets.
When the OBR made its last forecasts at the end of October, Ms Reeves had fiscal headroom of just £9.9bn but market movements since then have slashed this by £10.2bn, meaning Ms Reeves is now on track to break her fiscal rules, Mr Meaning said. Government borrowing costs climbed even higher on Friday after stronger than expected US jobs data pushed traders to slash their expectations for interest rate cuts on either side of the Atlantic.
