Chancellor Rachel Reeves is said to be prepared to impose more severe spending cuts on departments if necessary to balance the books, having already ruled out increasing either borrowing or taxes
A Cabinet minister has reassured the public that there’s no need to worry over escalating Government borrowing costs, following a surge in UK bond yields to their highest level since the 2008 financial crisis.
Culture Secretary Lisa Nandy, speaking to broadcasters on Friday morning, sought to calm Britons amid market turbulence, stating that the Labour administration’s tax and spend rules are “non-negotiable”.
It’s been suggested that Chancellor Rachel Reeves is ready to enforce stricter spending cuts on departments if required to balance the books, having already dismissed the idea of increasing either borrowing or taxes. When questioned about whether people should be anxious about the movement, Ms Nandy told Sky News: “I don’t think we should be worried. It’s obviously something we take very seriously, but these are global trends that have affected many countries, most notably the United States, as well as the UK.”
She continued: “We are still on track to be the fastest growing economy, according to the OECD in Europe. We’re not going to borrow for day-to-day spending.”
The Culture Secretary defended Ms Reeves’ trip to China this week as “absolutely” the right decision despite opposition calls for the Chancellor to cancel the planned visit amid market turmoil.
“China is the second-largest economy, and what China does has the biggest impact on people from Stockton to Sunderland, right across the UK, and it’s absolutely essential that we have a relationship with them,” Ms Nandy said.
“We need to make sure that the UK economy remains competitive, we need to challenge where we must, including in the area of human rights, but we also need to make sure that we are working with China on those areas of shared interest.”
The March fiscal statement from the Chancellor may bring more spending cuts into focus, coming ahead of a stringent spending review already pressuring Government departments to identify efficiency savings worth 5% of their budgets. This comes as the yield on Government bonds, key indicators of borrowing costs, escalate.
On Thursday, yields on 10-year gilts soared to the highest level since 2008 at 4.89%, before moderating slightly later that afternoon, finishing a basis point up for the day at 4.82% as the London market wrapped up. Simultaneously, the cost of longer-term borrowing also surged, with 30-year gilt yields touching heights unseen since 1998 at 5.39%.
As trading commenced on Friday morning, a further hike was seen, with 10-year gilt yields increasing to 4.85%, and those for 30-year gilts reaching 5.41%, up by three basis points. They then recoiled modestly after initial trades, nonetheless marking several basis points increase after a tumultuous week.
Amid this environment, the pound experienced a dip of 0.1% against the dollar on Friday morning, setting Sterling’s value at 1.229.
Critics have compared the situation to the fallout from former prime minister Liz Truss’ disastrous 2022 mini-budget, as the rise inversely affects the price of Government bonds, which are falling as a result. The increased cost of servicing Government debts could eat into Labour’s anticipated financial buffer, signalling potential investor concerns about fiscal sustainability in the UK.
The Chancellor has previously dismissed both increasing borrowing and raising taxes after significant tax hikes in October’s Budget, leaving her with limited options other than further spending cuts. Government bonds have been sold off globally in recent months due to fears that US President-elect Donald Trump might implement a tariff policy that could inflate many international economies.
