Reeves says market uncertainty shows need to kickstart economic growth

Rachel Reeves insisted the turbulence in the financial markets underlined the need to go “further and faster” in search of economic growth.

The Chancellor faced questions in the Commons after the cost of government borrowing increased and the value of the pound fell in recent days, putting her plans for the nation’s finances at risk.

Ms Reeves told MPs: “We have seen global economic uncertainty play out in the last week.

“But leadership is not about ducking these challenges, it is about rising to them.

“The economic headwinds that we face are a reminder that we should – indeed, we must – go further and faster in our plan to kickstart economic growth.”

The Chancellor was addressing the Commons following her return to the UK from a trip to China which was criticised by opposition MPs.

She said agreements reached in Beijing and Shanghai, where she held discussions on trade and investment, would be worth £600 million to the UK over the next five years.

But shadow chancellor Mel Stride said a “black hole has opened up in the public finances while (Ms Reeves) was absent from her station”.

“To give a sense of scale, the deal the Chancellor has announced amounts to £120 million a year.

“The rise in our borrowing costs due to her disastrous Budget has added around £12 billion to our annual spending on debt interest alone – literally 100 times what she says she has brought back from Beijing.

“That is money that cannot now go on the public priorities, £12 billion is enough to pay for 300,000 nurses, to cover Labour’s pernicious winter fuel payment cut for eight-and-a-half years.”

The situation was discussed at Cabinet, where Ms Reeves updated her colleagues on the global and UK economy.

Downing Street said Ms Reeves “reiterated that the Government would continue to take an approach that was relentless in supporting growth and cracking down on waste and inefficiency”.

Ms Reeves restated her commitment to her fiscal rules, which include meeting day-to-day spending through tax revenues.

But rising borrowing costs eat into the money available for public services, leaving Ms Reeves faced with either slashing spending or hiking taxes again, something she has pledged not to do.

Asked if she would rule out spending cuts, she told MPs: “I’m not going to write five years worth of budgets in the first six months of a Labour Government.”

The Government’s hope is that the economy will revive, with extra activity leading to higher tax revenues.

The Office for Budget Responsibility’s next set of forecasts will be published in March, which could force action by Ms Reeves if it appears she is set to break her rules – which are aimed at reassuring the markets that the Government can keep the nation’s finances under control.

The pound, which had risen early on Tuesday, later dipped back below 1.22 US dollars, hovering close to 14-month lows as government borrowing costs continued to come under pressure.

Yields on government bonds, also known as gilts, gave up a tentative recovery, edging back up to the multi-decade highs hit in recent days.

The 10-year gilt yield edged up to 4.9% and while 30-year long-dated gilts held firm at around 5.4%.

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.