Market turbulence has recently seen the price of servicing UK debt increase, calling for UK Chancellor Rachel Reeves to go “further and faster” to increase economic growth. Stronger pressures on public finances have occurred after government borrowing costs reached their highest point in years. The Chancellor acknowledged the scale of the challenge and criticised Conservative critics for ignoring the “global volatility” causing increases in borrowing costs in other countries. Reeves explained “economic headwinds” such as these raise the need to “go further and faster” to boost economic growth.
The Chancellor has recently returned to the UK from a trip to China aimed towards drumming up investment. Reeves announced her intention to fast-track announcements from Labour’s industrial strategy within the next two weeks. Promised in the Labour manifesto, sector-specific policies associated to the industrial strategy, for example, this week’s AI boosting initiative, will be published in the coming weeks. Reeves is currently navigating a critical moment as Chancellor with investors requiring higher returns on UK government bonds, known as gilts.
The yields from these gilts, regarding the interest rate at which the government pays back investors, are an essential indicator of market confidence. On Tuesday, the 30-year gilt yield reached 5.42%, almost the highest point since 1998. Reeves committed to clarify new economic policies after the World Economic Forum meeting in Davos. However, if borrowing costs in the UK continue to rise, this could lead to an annual debt interest increase of £10bn by 2029-30, which would wipe out the £10bn headroom against the fiscal rules allocated to the Chancellor.
Conservative shadow chancellor Mel Stride blamed the UK’s dented economic prospects on the recent cuts to the economy due to business tax rises in October’s Budget. Stride criticised the rise of interest rates, low growth, and business confidence, and accused the government of having “talked down the economy” and having “crippled businesses”. However, Reeves attacked such statements, expressing the market’s global volatility as the primary cause of the bond yields increasing in other countries
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