Sir Keir Starmer forced to defend Rachel Reeves as economic pressures increase on Government
Sir Keir Starmer acknowledged it will take time to turn the economy around as Ms Reeves faces the prospect of rising borrowing costs forcing her to slash spending or hike taxes to balance the books.
The pound fell to a fresh 14-month low on Monday, slumping another 0.6 per cent to 1.21 US dollars after last week hitting its lowest level against the dollar since November 2023.
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Hide AdUK government bonds – also known as gilts – continued to see 10-year yields hit fresh highs not seen since 2008, at 4.9 per cent.
The yield on 30-year gilts also hit new 27-year highs, up five basis points at 5.5 per cent at one stage in early trading before easing back to settle at around 5.4 per cent. Yields are a key indicator of market confidence, moving inversely to bond prices.
They rise when investors are less willing to own the debt, meaning they will pay a lower price for the bonds.
Answering questions following a speech in London yesterday, the Prime Minister stressed that the Government would meet its “fiscal rules” – including requiring day-to-day spending to be met from revenues rather than further borrowing.
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But rising borrowing costs eat into the funding available, which could force Ms Reeves to act to either reduce spending or raise taxes to comply with her rules when the Budget watchdog gives its updated forecast in March.
Pressed on the Chancellor’s future, he said: “Rachel Reeves is doing a fantastic job. She has my full confidence. She has the full confidence of the entire party.” He said the Government would be “ruthless” in its approach to public spending.
Yesterday afternoon, the Prime Minister’s official spokesman said Ms Reeves will be Chancellor “for the whole of this Parliament”.
Sterling’s weakness has been compounded by a stronger dollar, as markets see fewer interest rate cuts coming down the line.
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Hide AdOfficial figures due on Wednesday are set to show another rise in UK inflation, which could deepen the pound’s troubles.
There are worries over a knock-on effect on mortgages and pensions from the gilt market rout.
Critics have drawn parallels with the fallout from former prime minister Liz Truss’s disastrous 2022 mini-budget when the pound was sent crashing due to an acute sell-off in gilts.
The chairman of the Confederation of British Industry (CBI) also hit out at the Chancellor yesterday, saying business confidence has been left “bruised”.
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Hide AdRupert Soames said business leaders are less likely to employ people in the current climate.
He was referring to Ms Reeves’ decision to raise national insurance contributions (NIC) for employers, among other business cost increases in the October Budget.
The NIC increase is designed to help fund improvements to public services like the NHS, but it has come under criticism from companies for making it more expensive to employ people.
Mr Soames told BBC Radio 4’s Today programme: “The Chancellor told us at the time of the Budget that there was an unexpected hole of about £22 billion in the Government finances, and business was going to have to fill it.
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Hide Ad“In filling in one hole, it’s created another, and that hole is a hole in the confidence and trust that business has in the Government.”
Mr Soames’ comments come as a number of independent businesses across Yorkshire have announced they are closing in recent weeks.
On Sunday, the Two Brothers Grill and Pizzeria in Castle Courtyard, Knaresborough, announced it was closing on Sunday, while The Old Red Bus Station in Leeds and the 17th Century Staveley Arms pub, in North Stainley are also closing their doors.
The latter said: “With further major business impacts imminent from the recent Budget in the form of increased employment costs and national insurance, before even allowing for the inevitable price rises on supplies as all businesses try to combat these factors, we have concluded it is not possible to make the business sustainably viable and have made the very difficult decision to not continue.”
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