Rachel Reeves Attributes UK Borrowing Rate Hike to Global Economic Volatility Amid Conservative Criticism
Chancellor faces challenges as bond market instability prompts fiscal strategy reassessment, drawing political scrutiny
Rachel Reeves, the UK Chancellor of the Exchequer, defended her economic policies amid rising borrowing costs, attributing the increase to global market volatility, rather than domestic fiscal decisions.
Her statements come as she encounters significant political pressure and calls for resignation from her Conservative counterparts.
Addressing Parliament after returning from a diplomatic visit to China, Reeves responded to sharp criticism surrounding surging government borrowing costs.
The administration recently sold £1 billion in bonds under terms unseen since 2004, amid market conditions that reflect broader international trends rather than isolated national economic struggles.
Investors have been retreating from UK bonds and the pound amidst concerns regarding sluggish economic growth both domestically and globally.
These market dynamics have nearly eradicated the fiscal leeway Reeves once had, forcing a reassessment of fiscal policy which could entail further austerity measures or increased taxation.
Responding to Conservative demands for her resignation, Reeves remarked on the unrealistic nature of such criticism, stating, "The shadow chancellor is simply not serious." Her commitment to fiscal targets remains firm, despite potential contentious decisions on public spending cuts.
Treasury sources suggest that facing such fiscal dilemmas, Reeves may lean towards implementing further cuts, a challenging prospect given current expectations of departmental budget reductions averaging 1.3% from 2026 onwards.
Concerns over potential welfare budget reductions have also emerged, particularly regarding changes to personal independence payments (PIPs) amid public consultations.
Labour's Rachel Maskell, representing York Central, vocalized widespread parliamentary apprehensions about the welfare cuts, emphasizing the insufficiency of current support according to standards from organizations such as the Joseph Rowntree Foundation.
Iain Porter of the Joseph Rowntree Foundation cautioned against addressing fiscal gaps by increasing burdens on vulnerable populations, underscoring such measures as misguided.
Similarly, David Southgate of the disability charity Scope highlighted the critical role of disability benefits like PIP in sustaining fundamental services for disabled individuals.
Despite the turmoil, Labour leader Keir Starmer has publicly supported Reeves, endorsing her commitment to maintaining fiscal discipline.
Downing Street has clarified its position, noting that Prime Minister Rishi Sunak intends to retain Reeves through the current parliamentary term.
In the Commons, Reeves reiterated that it would be irrational to solely attribute bond yield hikes in international markets, including the United States and Europe, to UK government actions.
While financial markets exhibited some stability, with reports of potentially easing US tariff strategies, UK borrowing costs nudged upwards.
The 10-year bond yield increased to 4.89%, near its peak over the past 16 years, while 30-year bond yields approached their highest since 1998.
The government's recent auction of 30-year inflation-linked bonds was met with strong demand, although the debt was sold under the most expensive terms in nearly two decades, highlighting the lingering impact of bond market volatility on public finances.
Her statements come as she encounters significant political pressure and calls for resignation from her Conservative counterparts.
Addressing Parliament after returning from a diplomatic visit to China, Reeves responded to sharp criticism surrounding surging government borrowing costs.
The administration recently sold £1 billion in bonds under terms unseen since 2004, amid market conditions that reflect broader international trends rather than isolated national economic struggles.
Investors have been retreating from UK bonds and the pound amidst concerns regarding sluggish economic growth both domestically and globally.
These market dynamics have nearly eradicated the fiscal leeway Reeves once had, forcing a reassessment of fiscal policy which could entail further austerity measures or increased taxation.
Responding to Conservative demands for her resignation, Reeves remarked on the unrealistic nature of such criticism, stating, "The shadow chancellor is simply not serious." Her commitment to fiscal targets remains firm, despite potential contentious decisions on public spending cuts.
Treasury sources suggest that facing such fiscal dilemmas, Reeves may lean towards implementing further cuts, a challenging prospect given current expectations of departmental budget reductions averaging 1.3% from 2026 onwards.
Concerns over potential welfare budget reductions have also emerged, particularly regarding changes to personal independence payments (PIPs) amid public consultations.
Labour's Rachel Maskell, representing York Central, vocalized widespread parliamentary apprehensions about the welfare cuts, emphasizing the insufficiency of current support according to standards from organizations such as the Joseph Rowntree Foundation.
Iain Porter of the Joseph Rowntree Foundation cautioned against addressing fiscal gaps by increasing burdens on vulnerable populations, underscoring such measures as misguided.
Similarly, David Southgate of the disability charity Scope highlighted the critical role of disability benefits like PIP in sustaining fundamental services for disabled individuals.
Despite the turmoil, Labour leader Keir Starmer has publicly supported Reeves, endorsing her commitment to maintaining fiscal discipline.
Downing Street has clarified its position, noting that Prime Minister Rishi Sunak intends to retain Reeves through the current parliamentary term.
In the Commons, Reeves reiterated that it would be irrational to solely attribute bond yield hikes in international markets, including the United States and Europe, to UK government actions.
While financial markets exhibited some stability, with reports of potentially easing US tariff strategies, UK borrowing costs nudged upwards.
The 10-year bond yield increased to 4.89%, near its peak over the past 16 years, while 30-year bond yields approached their highest since 1998.
The government's recent auction of 30-year inflation-linked bonds was met with strong demand, although the debt was sold under the most expensive terms in nearly two decades, highlighting the lingering impact of bond market volatility on public finances.
