RACHEL Reeves will he hauled before Parliament today after a market meltdown sent borrowing costs soaring and the pound into a nosedive.
The Chancellor will be forced to break cover after jetting off to China while Britain’s economy took a battering — with Tories accusing her of “fleeing” the chaos.
Sir Keir Starmer yesterday poured petrol on the fire by dodging questions about whether she will stay in No11 long-term, before Downing Street scrambled to insist she’ll remain in post for the rest of the Parliament.
The Chancellor will deliver a statement in the Commons about her China visit, but she faces tough questions on Britain’s grim economic outlook after UK borrowing costs hit a 27-year high and the pound slumped to its lowest level since 2023.
The yield on 30-year government bonds surged to levels not seen since the 2008 crash, sparking fears Labour may be forced to either hike taxes or slash public spending to balance the books.
While in Beijing, Ms Reeves claimed to have secured £600 million in trade deals over five years.
Ms Reeves returned to Britain on Monday, claiming her Beijing trip secured £600 million in trade deals over five years.
But the Tories accused her of having “fled” to the country amid market turmoil while the Liberal Democrats called on her to remain in the UK to announce a “plan B” to address the instability.
Adding to her woes, former shadow chancellor John McDonnell warned cuts to balance the books would be “politically suicidal.”
He told BBC Radio 4’s Today programme: “The electorate have to be protected, otherwise I’m afraid we’re looking at a level of disillusionment which then turns people towards, unfortunately, Reform, and I think that would be a disaster for the country.”
The former frontbencher, who is on the Labour left, suggested the Government just has to “see through” the market turmoil, but he insisted a wider review of economic strategy is necessary including intervention from the Bank of England “if necessary”.
Labour had promised during the 2024 election campaign not to increase taxes on “working people”, explicitly ruling out a rise in income tax, VAT or national insurance.
Sir Keir has stressed the Government will meet its self-imposed “fiscal rules” – including requiring day-to-day spending to be met from revenues rather than further borrowing.
But meeting the rising cost of government borrowing eats into the funding available, which could force Ms Reeves to act to either reduce expenditure or hike taxes when the Budget watchdog gives its updated forecast in March.
The PM said the Government would be “ruthless” in its approach to public spending while Downing Street said “nothing is off the table” as departments consider where to cut spending.
Security minister Dan Jarvis defended the Chancellor as he faced broadcasters earlier this morning, saying she is doing a “good job” in difficult circumstances inherited by the previous government.
“The Chancellor has been in China over the course of the weekend, I think that was the right thing for her to do and she’s getting on with doing a difficult job of delivering economic growth for the country,” he told Sky News.
“These are difficult economic headwinds that we’re dealing with at the moment, but I think she’s doing a good job and I think the Prime Minister thinks that as well.”
But shadow Treasury minister Gareth Davies denied the previous Tory government had left behind a “terrible situation” for the Chancellor and said she had “made it worse” with the autumn budget.
Asked whether he would accept that her economic inheritance was not good, he told Sky News: “It was a lot better than it is today.”
Mr Davies added: “She needs to urgently get a grip of this and make sure she can calm nerves. I understand she’s coming to the House today under the guise of an update on her visit to China but let’s be clear what this is about: this is about her having to come out to calm markets, calm nerves because it’s clearly very troubling out there.”
Ministers were offered some relief on Tuesday morning as the pound regained its footing after hitting fresh 14-month lows on Monday, while UK Government bonds recovered some lost ground after a recent heavy sell-off.
Sterling held firm at 1.22 US dollars in morning trading, having sunk to its lowest level since November 2023 in recent days.
Government borrowing costs showed signs of stabilising, with yields on 10-year UK Government bonds – also known as gilts – down three basis points at 4.86 per cent.
The yield on 30-year gilts struck its highest level for 27 years on Monday, and 10-year yields rose to fresh highs not seen since 2008.
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.
