In recent developments, Chancellor Rachel Reeves prepares to present her second Budget on November 26. This week has been marked by significant government instability, including resignations and market fluctuations, which may influence the upcoming Budget.
Reeves’s position appears secure, as demonstrated by her attendance at an event in Birmingham, despite speculations surrounding other cabinet members. Following summer tensions within the government, market reactions indicated that concerns about borrowing costs linked to Reeves leaving office were valid. However, during her time at a housebuilding site, she expressed commitment to housing initiatives while dismissing speculative economic forecasts, including a potential £50 billion budget shortfall.
Global bond markets have shown signs of fragility, correlating with rising UK government borrowing rates, the highest since the early 2000s. As discussions about a possible IMF loan surfaced, Reeves maintained that these movements reflected wider global financial trends, not solely UK-specific issues. By the end of the week, a decline in long-term bond yields was noted, influenced by weaker U.S. job data rather than UK domestic politics.
Bank of England Governor Andrew Bailey downplayed concerns regarding long-term borrowing rates, emphasizing their minimal impact on overall government debt and indicating continued investor interest in UK debt sales. While current gilt market trends may not indicate serious UK economic instability, underlying concerns about inflation and government credibility remain.
As Reeves approaches the Budget, it is anticipated that her fiscal strategy will involve balancing tax increases and spending reductions to address any potential budgetary gaps. Assessments by the Office for Budget Responsibility (OBR) concerning UK productivity could significantly influence the extent of needed adjustments. Negotiations regarding budgetary constraints are expected, particularly with an emphasis on planning reforms.
Reeves’s ability to implement substantial long-term economic reforms may ultimately hinge on market conditions, OBR forecasts, and the sentiment within her party and government.
Source: https://www.bbc.com/news/articles/cqxzr0jdpngo?at_medium=RSS&at_campaign=rss