Embattled Rachel Reeves opens door to emergency spending cuts as market chaos piles pressure on public finances

RACHEL Reeves has opened the door to emergency spending cuts as market chaos piles pressure on public finances.

The embattled Chancellor yesterday came out fighting as she defended her controversial trip to China while Britain’s economy took a battering.

She blamed “global markets” for the record spike in UK debt interest payments, dismissing Tory claims that her Budget caused the surge.

Ms Reeves also refused to rule out a full Budget in March.

But with interest repayments soaring, Ms Reeves hinted public services could face imminent cuts as she vowed to stick to her strict financial rules “at all times.”

These rules require the Government to cover everyday spending through taxes and bring down debt.

However, rising borrowing costs have left little room to manoeuvre, with forecasts suggesting she could breach them.

Facing down MPs in the Commons, Ms Reeves said she would address concerns over the state of the public purse in March after the Office for Budget Responsibility’s next update.

Asked in Parliament if she could rule out tax rises and spending cuts in an emergency Budget, the Chancellor instead recommitted to the borrowing rules announced in October.

She said: “We have committed to have just one budget per year to provide businesses with the certainty that they need to invest, so we will have an update from the OBR in March.

“We have set out the fiscal rules that we will balance day to day spending with tax receipts and we will get debt down as a share of GDP within the forecast period, and we will continue at all times to meet those fiscal rules.”

Ms Reeves also vowed to go “further and faster” in the face of market turmoil as she sought to reassure MPs after a week of surging borrowing costs.

Downing Street also did not rule out an emergency Budget, with the PM’s spokesman saying: “No one should be under any doubt of the Chancellor’s commitment to economic stability and sound public finances.”

The Chancellor’s comments came as she was grilled over her China trip, defending it as vital to boost UK investment.

But Shadow Chancellor Mel Stride accused her of “scampering around the world with a begging bowl” while markets tanked back home.

Comparing her position to a Shakespearean tragedy, he quipped: “To go or not to go? That is now a question.”

The unfazed Chancellor was seen laughing with Labour frontbenchers as Mr Stride tore into her handling of the economy.

The Tories blasted on X: “Labour think that losing control of the public finances, and sending the economy into crisis, is a laughing matter… Shameful.”

The Commons showdown comes after Sir Keir Starmer poured petrol on the fire by dodging questions about whether Ms Reeves will stay in No11 long-term, before Downing Street scrambled to insist she’ll remain in post for the rest of the Parliament.

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.

On Tuesday, 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 has had the Labour whip suspended, 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”.

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.