Rachel Reeves has told the Conservatives to “get real” as she blamed global economic volatility for the recent spike in UK borrowing rates which has triggered calls for her resignation and left her contemplating further public sector cuts.
The chancellor appeared in front of MPs on Tuesday for the first time since travelling to China and after several days of bond market turmoil which have taken the government’s borrowing rates to their highest levels in decades.
Reeves told the Commons that the recent moves in UK bond markets tracked those seen in other countries, as she accused senior Conservatives calling for her departure of not being “serious”.
Addressing demands from her counterpart, Mel Stride, to step down, Reeves replied: “The shadow chancellor is simply not serious.”
In response to a later question from the Conservative MP Luke Evans, she said: “There has been global volatility in markets. I don’t really believe that it is reasonable to suggest that the reason why bond yields in the United States, in Germany and France have risen is because of decisions made by this government. I think the honourable member opposite should just get real.”
Reeves is facing one of the most difficult periods in her six months in office, with investors dumping both UK bonds and the pound amid concerns about low growth in Britain and abroad. The government sold £1bn worth of new bonds on Tuesday on the most expensive terms since 2004.
The chancellor spent the weekend in China in an attempt to drum up new investment, prompting accusations that she was both kowtowing to Beijing and hiding from problems in the UK.
The Conservatives criticised the trip on Tuesday, with Stride likening her position to that of Hamlet at the end of the Shakespeare play. “You can feel the end, the chancellor flailing, estranged in siege from those closest to her; those about her falling, the drums beating ever closer,” he said. “To go or not to go, that is now a question.”
Reeves, however, defended the trip, saying: “I went to secure tangible benefits for British businesses trading overseas.”
Keir Starmer has so far expressed his confidence in Reeves, saying on Monday morning she was right to be “ruthless” in sticking to her fiscal targets. Downing Street clarified that afternoon that the prime minister intended to keep her as chancellor until the end of the parliament after initially refusing to do so.
Experts said the recent move in UK borrowing costs have all but wiped out the headroom Reeves had against her fiscal targets, leaving her looking for further tax rises or spending cuts to make up the shortfall.
Treasury sources said that if confronted with that choice, Reeves would choose another round of cuts, even with unprotected departments already being asked to make average reductions of 1.3% every year after 2026.
Labour MPs are warning the chancellor against trying to “cut her way out of a crisis”, but the chancellor insisted on Tuesday she would never miss her targets, saying: “We remain committed to those fiscal rules, and we will meet them at all times.”
She said that the way out of her economic difficulties was to push for more economic growth, telling MPs she wanted to go “further and faster” in her plan to kickstart the economy.
