CHANCELLOR Rachel Reeves has come under intense scrutiny after a turbulent period in the financial markets sent the pound plummeting to a 14-month low and drove up the cost of government borrowing.
The resulting economic crisis, which multiple economists warn will hit working people the hardest, has sparked concern that Labour’s budgetary promises are in jeopardy, with fresh spending cuts and possible tax hikes looming in the spring.
Labour has repeatedly insisted it would not breach its fiscal rules, but senior figures admit steeper cuts to public services are now ‘non-negotiable’.
One Treasury source remarked: ‘If we have to choose between raising taxes and cutting spending, we will cut spending.’
The Prime Minister’s office has also described the rules as a ‘red line’ the government is not willing to cross.
Fears are escalating that departments which were already braced for reductions could face even deeper cuts than those initially planned.
One backbencher confessed there was ‘massive’ alarm among Labour MPs about the prospect of ‘brutal’ measures, with some arguing that their confidence in the Chancellor is collapsing.
At the same time, mortgage-holders and prospective buyers face fresh anxiety.
Sterling’s slump to its lowest level since November 2023 and the rise in gilt yields – the interest rate on UK government bonds – have spurred forecasts of higher mortgage rates.
Paul Dales, chief UK economist at Capital Economics, warned: ‘This will probably show up in a further rebound in UK mortgage rates from around 4.5% in December to just over 5.0% in the coming weeks which, together with rises in other borrowing costs, will restrain activity.’
Critics argue that Labour’s economic management has failed to stabilise markets or protect households, despite promises to boost public services.
Many point to the autumn budget as the root of the current turmoil.
Tax rises of £40bn and significant borrowing, purportedly aimed at fixing the UK’s public services, have come under fire.
Economists say that surging borrowing costs are eroding the Chancellor’s £10bn fiscal buffer, putting further pressure on the Treasury to either increase taxes again or impose additional cuts on public spending.
Facing an urgent question in the House of Commons, Treasury minister Darren Jones insisted: ‘It is normal for the price of yields and gilts to vary when there are wider movements in global financial markets, including in response to economic data.’
Business confidence continues to deteriorate.
One chief executive critic declared: ‘Bond yields are higher than when Kwasi Kwarteng got sacked.
‘The whole government should be fired, frankly, including Rachel Reeves, because they jacked up taxes, they crushed pensioners, they’re crushing farmers. They’re crushing businesses with their high taxes.’
The Chancellor’s national insurance hike has also been singled out for strangling wages and recruitment, with many branding it a ‘jobs tax’.
Compounding these woes, a new report from the Chartered Institute of Procurement and Supply (CIPS) warns that household staples and imports could rise by up to 20% due to severe issues in global supply chains.
The document cites inflation, geopolitical instability, workforce and labour disruptions, supplier turmoil, and cybersecurity threats as the biggest challenges of 2025, suggesting that the brunt of these problems will fall on everyday consumers.