Rachel Reeves is facing her first major test as chancellor of the exchequer after the UK government’s borrowing costs rose for a third consecutive day on Thursday.
The stirling’s losses against other currencies also further deepened, leaving Reeves staring down the barrel of potential future cuts to public spending, less than three months after she presented the first Labour Party budget since 2010 to Parliament.
After a selloff in debt markets through Tuesday and Wednesday pushed the interest rate on 30-year UK government bonds to 5.46 percent, their highest point since 1998, London’s Treasury said it would maintain “an iron grip” on the public finances.
“UK debt is the second lowest in the G7 and only the Office for Budget Responsibility’s (OBR) forecast can accurately predict how much headroom the government has—anything else is pure speculation,” the UK Treasury said in a statement.
The OBR is a nondepartmental publicly funded body that monitors the UK government’s spending plans and performance.
Gilt yields rose again on Thursday—albeit less sharply than over the previous two days—and the pound was headed for its biggest three-day drop in nearly two years.
Gilts, or bonds, are issued by governments to finance their debt and are seen as a safe form of investment.
The fall in the value of the pound along with the dumping of UK bonds has prompted some critics of Reeves to compare the current situation with the 2022 “mini-budget” that forced Liz Truss out of Downing Street just six weeks after she got the keys to Number 10.
The opposition Conservative, Reform, and Liberal Democrat parties have all called on the chancellor to cancel her planned trip to China to address the issue in the House.
Putting an urgent question to the Treasury in the Commons on Thursday, Tory Shadow Chancellor Mel Stride asked Labour Deputy Finance Minister Darren Jones: “Where is the chancellor? It is a bitter regret that at this difficult time with these serious issues, she herself is nowhere to be seen.”
Jones, whose official title is chief secretary to the Treasury, responded on Thursday by saying that British financial markets remain orderly and that there is no need for authorities to intervene.
“UK gilt markets continue to function in an orderly way. Underlying demand for the UK’s debt remains strong,” Jones told the Commons.
“There is no need for any emergency intervention.”
Jones stressed Labour’s commitment to new fiscal rules that target a balanced day-to-day budget and falling public sector net financial liabilities by 2029–2030, saying: “These fiscal rules are non-negotiable. That is why public spending will be within the numbers set out at the budget.”
He did not directly respond to questions about whether the government would rule out raising taxes given higher borrowing costs but rather stated: “It is normal for the price of yields and gilts to vary when there are wider movements in global financial markets including in response to economic data.
“In recent months moves in financial markets have been largely driven by data and global geopolitical events, which is to be expected as markets adjust to new information.”
The OBR estimated that Reeves had just under 10 billion pounds ($12 billion) of wiggle room to stay within the fiscal rules after her Oct. 30 budget.
But the rise in gilt yields and government debt interest payments mean many economists think Reeves is now on course to break her own rules.
The OBR will produce fresh budget forecasts on Mar. 26, and the government will conclude a spending review in June.
Asked why Reeves did not respond to the urgent question, British Prime Minister Keir Starmer’s official spokesman said: “It’s up to the Treasury who they send to respond to UQs [urgent questions].
“I think it’s quite common for the chief secretary to respond to urgent questions in the chamber.”
