Rachel Reeves has been dealt a major blow after a group of economists warned that surging borrowing costs could stifle Labour’s plan for growth.
Goldman Sachs’ James Moberly said the UK economy will now only grow by a meagre 0.9 per cent in 2025, down from the two per cent predicted by the Office for Budget Responsibility at the time of the Budget in October.
Higher interests rates, made worse by surging borrowing costs, seemingly worsened the fiscal situation facing Britain.
Speaking while the Chancellor travels to China, Moberly said: “We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment, with the increase of the last few days worth around 0.1 percentage point of additional growth drag this year.”
Rachel Reeves with an inset of Xi Jinping and the tumbling value of sterling
PA/GETTY
He added: “The rise in UK long-term yields in recent days is not driven by shifts in UK growth expectations or monetary policy, but primarily by concerns around the UK fiscal outlook.”
Reeves was yesterday urged against embarking on her trip to China, instead being told to focus on solving Britain’s economic woes at home.
The surge in borrowing costs has resulted in 30-year gilt yields hitting levels not seen since 1998 and 10-year gilt yields spiking to a post-2008 peak.
The pound has also tumbled against the dollar as a result of market turmoil, falling from a summer high of $1.34 to a 15-month low of $1.23.
Speaking in the House of Commons after being granted an urgent question, Stride asked: “Where is the Chancellor?”
Stride added that it was a “bitter regret” that the Chancellor was “nowhere to be seen” as the premium on UK borrowing costs compared to German bonds reached its highest level since 1990.
Tory grandee Dame Harriet Baldwin put more pressure on Reeves after the Chancellor failed to address questions in the House of Commons yesterday.
Speaking to GB News this morning, Baldwin said: “She [Reeves] needed to come to the Commons yesterday to explain how she is going to get growth and not get on a plane and flee to China.”
