RACHEL Reeves is fire-fighting after the cost of government borrowing spiked to above the peak hit during Liz Truss’s time in power – and inflation also rose more than expected.
Earlier this week, UK Government borrowing costs rose to their highest in months; the yield on conventional 30-year gilts touched its highest since April 9 at 5.625%, while the yield on two-year government bonds was also up at 3.990%, the highest since June 9.
The real yield on 30-year inflation-linked debt – the return investors get from 30-year government bonds that protect against inflation – rose to its highest since at least 2010 at 2.571%, according to data from LSEG.
This meant the rate had pushed past a previous high of 2.547% set on September 28, 2022 during turmoil after former prime minister Truss's disastrous “mini-budget”.
Official figures on Wednesday then showed that UK inflation rose to 3.8% in the 12 months to July, almost double the Bank of England's 2% target and 0.1% above the widely expected 3.7%.
The bank has forecast inflation will peak at 4% in September and remain above its target until mid-2027.
Reuters reported that investors are starting to think ahead to Reeves's Budget in the autumn, when many economists think she will have to raise taxes by tens of billions of pounds to stay on track to meet her self-imposed fiscal rules.
Responding to the figures, SNP economy spokesperson Dave Doogan MP said: “Prices are up again because the Labour Party has lost control over the economy – they promised stability and promised ‘change’ but the truth is that things have only got worse under their watch.”
Doogan said the spike in the cost of food and drink – inflation in that area rose to 4.9% in July, from 4.5% in June – was “particularly painful for households”
“Economic stat after economic stat, figure after figure, month after month confirms what people already know – Brexit Britain is broken – and Scots now know that the cost-of-living crisis will never end under Westminster control.
“As the Chancellor prepares another brutal Budget this autumn that will directly hit people in the pocket, Rachel Reeves should be laying the ground to help households with their family finances instead of blatantly laying the ground to fill the financial black hole in the UK Treasury.”
LibDem MP Susan Murray also said that while the Tories had left a “toxic economic legacy”, Reeves has “made things worse for herself”.
"The markets clearly don't have a lot of faith in Labour's economic plans,” Murray went on. “That's no wonder because her National Insurance hike is already hurting businesses and making them less willing to take on new staff.
"The UK needs to invest in getting people who are inactive back to work by getting them the mental health care and support they need.
“It also needs a serious programme of investment in the key industries of the future to ensure that we are at the forefront of fields like renewable technology and biosciences."
The Treasury declined to comment on market movements in gilt yields.
However, addressing the inflation figures on Wednesday, Reeves said: “We have taken the decisions needed to stabilise the public finances, and we’re a long way from the double-digit inflation we saw under the previous government, but there’s more to do to ease the cost of living.
“That’s why we’ve raised the minimum wage, extended the £3 bus fare cap, expanded free school meals to over half a million more children and are rolling out free breakfast clubs for every child in the country.”
