In the wake of escalating government borrowing costs, Chancellor Rachel Reeves has pledged to accelerate efforts to stimulate the UK’s economic growth. On 14 January 2025, Reeves addressed Parliament. He noted high government bond yields and pressure on public finances.
The Chancellor’s remarks come amid criticism from Conservative Shadow Chancellor Mel Stride, who attributed the financial turmoil to the government’s recent fiscal policies. Stride said the October Budget’s tax hikes hurt the UK’s economy. He called it “a crisis made in Downing Street.””
Reeves, returning from a trade mission to China, defended her economic strategy, emphasizing the necessity of international engagement to secure investment. She reported that the visit led to agreements worth £600 million. They cover vaccines, fertilisers, whisky labelling, legal services, automotives, and accountancy. The agreements are for five years.
During her address, Reeves stated, “The economic headwinds that we face are a reminder that we should, indeed we must, go further and faster in our plan to kick-start economic growth that plunged under the last government.” She said that detailed economic policies would be unveiled after the World Economic Forum in Davos. An expedited industrial strategy aims to boost growth.
The financial markets have exhibited volatility, with the yield on 30-year government bonds reaching 5.42%, nearing the highest level since 1998, and 10-year bonds at 4.87%, the highest since 2008. Higher borrowing costs could add £10 billion a year to debt interest by 2029-30. This would wipe out the Chancellor’s fiscal headroom.
In response to Conservative critiques, Reeves attributed the rising borrowing costs to global market volatility, noting similar trends in the United States, Germany, and France. She asserted that attributing these developments solely to UK government decisions was unreasonable.
Prime Minister Sir Keir Starmer has expressed unwavering support for Reeves, confirming that she will remain Chancellor for the duration of the current Parliament. This endorsement comes amid pressures to clarify policies on living standards. There are also concerns over potential austerity measures.
The Chancellor’s commitment to adhering to fiscal rules—ensuring that day-to-day spending is matched by revenues and that public sector financial liabilities decrease as a proportion of GDP—remains steadfast. However, she has not ruled out spending cuts or tax hikes due to changing market conditions.
As the UK navigates this period of economic uncertainty, the government’s strategies to balance fiscal responsibility with the imperative for growth will be closely scrutinised. The upcoming policy announcements should clarify the administration’s plan to boost the economy.
