Britain’s finance minister, Rachel Reeves, has pledged to maintain a “tight grip” on public spending as the country’s long-term debt interest rates soar. This announcement comes ahead of her annual budget speech, scheduled for November 26. The British pound recently plummeted after the yield on 30-year UK government bonds reached its highest level since 1998, sparking concerns about the rising state debt across major economies.
Reeves emphasized the need to bring inflation and borrowing costs down by adhering to strict fiscal rules, which involve keeping a close control on day-to-day spending. This move is aimed at balancing the books, ensuring that tax revenues match day-to-day spending, and limiting borrowing to investment purposes only.
The UK’s economy has struggled to grow since the Labour party won the general election over a year ago, with Reeves implementing tax hikes and public spending cuts. However, some of these policies were later reversed following heavy criticism, and speculation has arisen about her position as chancellor of the exchequer ahead of the budget.
Recent developments, including Prime Minister Keir Starmer’s promotion of Darren Jones to chief secretary, have reignited talk about Reeves’ future. Analysts warn that further tax increases are likely to be announced in the November budget to help meet the government’s fiscal goals. According to Matthew Ryan, head of market strategy at Ebury, “further tax hikes are almost certain” to address the public coffers’ shortfall.
A British think tank, the Resolution Foundation, estimates that rising bond yields have added over £3 billion to the government’s debt interest costs. The foundation also notes that Labour’s policy reversals, including the reinstatement of social care spending, have added more than £6 billion to the spending bill. The National Institute of Economic and Social Research suggests that over £41 billion per year will be needed by 2030 to balance the public accounts.
As the UK government prepares for the upcoming budget, it faces significant challenges in managing its debt and stimulating economic growth. The consequences of these fiscal decisions will be closely watched, both domestically and internationally, as the country navigates its economic woes. With the budget speech approaching, all eyes will be on Reeves to see how she plans to address the nation’s financial challenges and balance the competing demands of reducing debt and promoting economic growth.