The UK’s long-term borrowing costs hit their highest point in 27 years, adding to the Chancellor’s woes as she contemplates tax rises in the autumn.
The interest rate on 30-year governments bonds – known as yields – reached their highest level since 1998 on Tuesday.
Thomas Pugh, an economist at RSM UK, said that if yields stayed at this level, then it could cost the Treasury an additional £4bn to £5bn by the time of the Budget.
The date of the Budget will be confirmed on Wednesday, but is expected to be in November.
The Chancellor has left herself only £9.9bn headroom against this pledge, which is thought to have already been wiped out. Estimates of how much she will need to raise to meet the pledge range from £20-£50bn.
He went on: “Our fiscal strategy has been backed by the IMF and others and our approach has helped interest rates to be cut five times since the election.”
However, some experts argue there are specific circumstances which have left the UK more vulnerable, such as the level of debt and stubborn inflation.
He said: “Gilt yields in the UK rose after the Prime Minister reshuffled the deck, seemingly sidelining his iron Chancellor Reeves by poaching her deputy. If the Treasury won’t break the rules, then perhaps No 10 can?”
“The Prime Minister beefed up his economic team in the lead-up to the budget. This has not gone down too well, with concerns that there is still a strategy void when it comes to the economy, as the Government struggles to deliver the growth that it promised,” she said.
Labour MPs were split on the significance of the market movements. One backbencher told The i Paper that a range of other financial indicators were healthy and that it would only be a problem if the Budget was a “[Liz] Truss car crash, which it won’t be.”
‘Frank conversations on welfare needed’
They added: “It is not immediately clear to me what areas of public spending the Parliamentary Labour Party will accept for restraint.
The appointment of Jones has been welcomed by many Labour MPs and seen as an attempt by Starmer to get more control over the Whitehall machine.
A Labour insider said: “Our system hasn’t mimicked what other countries have with a ‘department of the PM’ but it’s long past the time when we should… I assume Jones will be there to impose the politicians’ will on the civil service.”
“One thing that’s important is that ultimately these problems are Keir,” they said.
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“One of Keir’s pitches was that he knows how to run organisations. He needs to actually demonstrate that now.”
A spokesman said the move “reflects the strengthening of the relationship between the Prime Minister and the Chancellor, a determination to drive growth in the economy, a recommitment to our robust fiscal rules.”
The spokesman added that he told the Cabinet: “He and the Chancellor had spoken at length over the summer about how these changes would bolster their joint approach to the growth agenda and ensure it is a key factor when taking decisions.”
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