There is a “high chance” that Rachel Reeves will be forced to announce emergency spending cuts this spring, Barclay’s Chief Economist has said, as borrowing costs surged again on Friday. The Telegraph has more.
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 U.K. 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 26th, “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 £9.9 billion but market movements since then have slashed this by £10.2 billion, 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 U.S. jobs data pushed traders to slash their expectations for interest rate cuts on either side of the Atlantic.
Worth reading in full.
In the Telegraph, Matthew Lynn says Rachel Reeves’s fate is now sealed:
In reality, the last few days have surely sealed Reeves’s fate. Her Budget has unravelled very quickly, crashing the economy, and she has made that worse by failing to come up with any kind of response.
Her credibility has been shot to pieces, and she is now a liability to a Government that is already sinking in the polls, and struggling to get control over events. The attention will now turn to who can replace her.
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I guess that’s the problem with being massively in debt. Had different paths been pursued in the past we would have room to go our own way. A country isn’t really sovereign if its economic policies can be so easily changed by a short term market reaction. Perhaps that is a good thing though. Depends if you think this particular market is wise or not.
Labour’s method of government continues as seen before, many times.
Get elected.
Raise taxes to punish the ‘rich’.
Spend a lot of money on favoured clients.
Realise they have spent too much.
Panic.
Get thrown out next time around. The only time this did not happen was in the Tony Liar first term when Gordie kept to the Tory economic plan left to them by a government that had left the economy in good shape.
Lets not forget thst many of the Reeves budget to kill off business don’t hit until April/May so as they say, “You ain’t seen nuthin yet”
Agreed. My bet is that when she (nominal) interferes it will be to raise taxes because the real aim of their (Davos Deviants) fiscal policy is to destroy this country.
Actually a lot of measures are already being put in place by businesses ahead of the next tax year. Freezing recruitment, closing down shops, raising prices etc.
That’s another reason why they’re trying to cancel the May Local Elections.
You can see from this plot of index linked gilt spot yields how the real cost of borrowing has gone up recently. Spot yields are the implied theoretical real yield on a zero coupon index linked gilt.
Notice that market expectations of 10-20 year inflation (the dotted lines on the chart) implied by the difference between nominal conventional gilt yields and index linked real yields haven’t really changed in the past 20 years, staying at around or just above 3%pa.
So nominal government borrowing costs have gone up in line with real borrowing costs.
Maybe something to do with the Real Black Hole, and I don’t mean the puny 20 billion black hole aka the Tory legacy.
I simply wonder why there is no mention of the 350-500 Billion spaffed away on covid/Ukraine/net zero etc.. Never mentioned.
Apparently didn’t leave even the tiniest black hole.
Approx half a trillion pounds printed in the first three months of lockdown.
Oh, look, a squirrel!
Found this on Amazon
At the risk of Labouring the point, there’s a whiff of 1976 in the air, when Chancellor Dennis Healey was booed at the September Party Conference for advocating public spending cuts…
https://youtu.be/RpKz54bxXuU?t=25
…Only for the IMF to then intervene in December. The rest, as they say, is history.
Necessity coming up for Sir Kia to execute a few reverse ferrets, starting off by dispensing with the Princess of Theeves and continuing by moving Miliband to the next available backwater.
One of the problems with spending cuts is that so much expenditure is tied to legally binding criteria which would be hard to un-wind.
Nonetheless, where we can there should be a 10% cut in state funding and a commitment to work towards winding up the NHS and generally removing the state from as much of our lives as possible.
Is Parliament sovereign or not?
Not, obviously.
One would hope that employment of surplus civil servants isn’t too legally binding, unlike say a five year contract to a private company to provide a service. Civil servants employed during or after the COVID era should be relatively cheap and easy to let go with less than five years in the job. Back in the days when I was in HR for a retail business, it was statutory three months plus three weeks for each year, so cutting the salary bill by about 50% for each one kicked out for five years in the job.
Agreed, but even a five year contract to a private company to provide a service should have adequate clauses for (de)termination for reasons other than force majeure. However the civil service do not have a great repution for writing robust contracts and my brief experience in 2020 with NHS Providers was that they had no idea.
It was well known by anyone who was paying the slightest attention that the period between March 2020 & the start of 2023 created financial problems on a scale never seen before (at least the population had a chance of understanding what created the war debt ie war expenditure ie real stuff).
The spending madness on the Covid mass panic has never been truly admitted or examined. eg one small example – Test & trace anyone – officially £37m but I heard more like £51? Anyone counting anyone cared?
So Rachel from accounts must have known this. She cannot just pretend it isn’t there.
Pining her hopes on a surging economy by simultaneously punishing businesses by hiring staff (& giving said staff further employment rights from day one), increasing a range of personal taxes combined with the most expensive power supplies ever & rising is just never going to work.
Don’t think saying she wasn’t going to raise taxes/cur public spending was an intelligent thing to say in her first budget.
But then, I’m not an economist …….
If what Thieves is doing is “never going to work” why are they doing what they are doing? The question is rhetorical as I’ve spoken of this many times previously.
I assume you mean billion vs millions for the test and trace…?
I thought millions for one small example T&T but billions overall. I get lost in the 000000’s. I’m sure I’m not the only one. After all what’s a few noughts between friends?
Neither is she by all Accounts.
The problem, as far as I can see, is that regardless of how incompetent this government is, they have a large majority in parliament.
So until the next election, there is no way of getting rid of them.
Theoretically at least, they could cling on even if there were mass protests, economic bankruptcy, starvation, pensioners freezing to death.
I do not believe this government is incompetent. Acting under orders definitely but by and large incompetency does not figure.
It’s the Tories fault.
They didn’t leave sufficient cash before they were kicked out.
They should have left a note saying ‘Sorry there is no money left’. That is what makes this situation unique as normally the Tories leave a good economy like they did when Major was ejected. But as we have had 14 years of socialist Blue Labour Tories the economy is not in great shape. Not as bad as Labour have claimed given that things were on the up until they took office and crashed it all. I find it hard to believe Rachel will survive once we are in recession.
Trump will lavish tariffs on Britain and punish it for going cap in hand to China,
And so he should!
This is the last lefty western government for a long time and Trumps levies and tariffs are well deserved!
Britain will emerge strong again with Trumps help
Rule Britannia
Do you think Rachel-from-Accounts is actually seeking asylum in China?
I’m sure she’d find the regime there more to her liking than even a nominally Capitalist, nominally democratic UK.
Can’t wait til they take the bold steps and cancel benefits to the able bodied unemployed. To remove those in housing for the disabled, if they are not disabled, etc etc etc. oh boy, there will be unrest them. But what choice does this gov’t have. The taxpayers pockets have been emptied, small businesses the same.