WILL JONES
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.
This article (“High Chance” Reeves Will be Forced into Emergency Spending Cuts) was created and published by Daily Sceptic and is republished here under “Fair Use” with attribution to the author Will Jones
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Incompetent Reeves must be sacked – but her replacement will be worse
Those praying for the Chancellor’s demise should be careful what they wish for
BRIAN MONTEITH
As reports about the British economy continue to get worse and the Reeves recession is anticipated, could the Prime Minister save the country more financial pain by changing his Chancellor?
There is no doubting the culpability of Rachel Reeves in creating the trail of dreadful statistics and knocking the stuffing out of British business confidence. The largest private-sector survey of British firms, conducted by the British Chambers of Commerce, shows tax is their number one concern.
The results can be seen as service sector companies slash jobs. The closely watched S&P Global UK Services Purchasing Managers’ Index (PMI) shows December’s fall in staff numbers was the largest since January 2021. Excluding the Covid pandemic period, it was the steepest fall in over 15 years.
S&P observed a “post-Budget slump” in business optimism amidst concerns about burgeoning payroll expenses and a “general unease about the climate for business investment”.
The sense of gloom dominates manufacturing too. The S&P Global UK Manufacturing PMI fell to a 11-month low of 47.0 in December.
Claiming that delivering economic growth is Labour’s number one priority is not enough to make it happen. Neither is pouring hundreds of billions into the public sector, especially when it is funded by ever more expensive borrowing and the largest tax increase in history of £41.5bn.
The Government’s borrowing costs are shooting up as markets appear to have lost confidence in its economic strategy (insofar as there is one).
With the bond markets in turmoil, the stark reality is that genuine public spending cuts – effectively Labour-owned austerity measures – could soon become a reality, causing outrage among Labour MPs and a further slump in electoral support.
As mortgage rates climb, it will also become obvious that everything Labour MPs claimed about Liz Truss will apply to them, but with bells and whistles on.
The confluence of bad statistics and collapsing confidence can mean only one thing – a “Reeves recession” and a consequential need for a Spring Statement. The prospect of Reeves using her fiscal statement planned for March 26 to raise further taxes is now widely acknowledged – and anticipated with dread.
Reeves has created not just an economic doom loop in which increased borrowing costs will force her to hike taxes even more, further killing growth – she is well on her way to create a political doom loop for her party too.
Broken promises on winter fuel payments, taxes and economic growth are damaging Labour MPs’ chances of re-election, but further measures of spending cuts and higher taxes will make Labour even more unpopular.
The question Keir Starmer has avoided so far, but will only grow, is: “When will he reshuffle his Chancellor out of her job?”
An important factor in making that decision will be who he could replace Reeves with. Is there anyone out there?
There is already speculation on the Labour backbenches, but scour the party’s ministers, and you won’t find many who would pass muster when it comes to having a Chancellor’s skillset.
Practically no one has business or real private sector experience. Instead, there are a plethora of ex-union apparatchiks and experts in raising taxes replete with think tank experience.
Ironically, their solutions would likely be considered as more extreme than those already introduced by Rachel Reeves.
[…] One thing is certain – it will not be Tulip Siddiq from the Treasury team, with the anti-corruption minister now under investigation for corruption by the Bangladesh government and the British press uncovering her deep links to her ousted autocrat aunt’s regime there.
She faces calls to resign and has reported herself to the Prime Minister’s independent adviser on ministerial standards.
The frank truth is wherever one looks, Labour’s pool of talent with relevant experience is not deep. A motley collection of former union reps, NGO workers and political staffers is typical, with 90pc of ministers being trade union members.
The Telegraph: continue reading
Featured image: scmp.com
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