Rachel Reeves intervention ruled out as pound slides further

An intervention by the chancellor to help shore up flagging financial market confidence in the UK economy has been ruled out by the government, amid further declines in the value of the pound.

Sterling fell to its lowest level against the dollar since November 2023 early on Thursday, building on recent losses.

A toxic cocktail of concerns include budget-linked flatlining growth, rising unemployment and the effects of elevated interest rates to help keep a lid on rising inflation.

They have also been borne out by a leap in UK long-term borrowing costs, which hit levels not seen since 1998 earlier this week.

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It piles pressure on the chancellor because it signals that investors are demanding greater rewards in return for holding UK debt, adding unwelcome costs to Ms Reeves who is borrowing money to invest in public services in addition to the budget tax burden on business and the wealthy.

The Tories were granted an urgent question in the Commons this morning which urged her to account for the shift in the market reaction to her budget, which critics have warned will only harm investment, jobs, pay and lead to higher prices.

Treasury minister Darren Jones, who was sent to reply on her behalf, told MPs there were no plans for further commentary beyond a Treasury statement issued on Wednesday which defended the government's approach.

Shadow chancellor Mel Stride urged Ms Reeves to cancel her forthcoming, and long-planned, trade trip to China to allow for a change of course to recover market confidence.

He claimed Britons are having to "pay the price for yet another socialist government taxing and spending their way into trouble".

Mr Jones responded that he would take no lessons on managing the economy from the Conservatives.

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Liberal Democrat leader Ed Davey demanded an emergency fiscal statement to parliament that cancelled the planned hike to employers' national insurance contributions in April to boost economic growth and bring interest rates down.

In addition to the strain on sterling over Mr Reeves's tax and spending plans, the effect on the pound has been intensified by a strengthening dollar due to shifting market expectations of fewer US interest rate cuts this year.

Sterling is trading at $1.22 - a level last seen in November 2023.

The spot rate had stood as high as $1.34 in September.

It has also fallen sharply however against other countries' currencies.

The pound is a cent down versus the euro at €1.19 on the start of the week, falling six tenths of a cent in today's market moves.

Long-term bond yields, which reflect perceived risk, hit their highest level since 1998 this week and other benchmark gilt yields are heading north too.

Additional borrowing costs make it more expensive for Ms Reeves to service the debt she is taking on.

It may mean she faces a choice between more tax rises - something she had previously ruled out - or spending cuts as higher borrowing costs take their toll.

The Treasury said in its statement: "No one should be under any doubt that meeting the fiscal rules is non-negotiable and the Government will have an iron grip on the public finances.

"UK debt is the second lowest in the G7 and only the OBR's forecast can accurately predict how much headroom the government has - anything else is pure speculation.

"Kick-starting economic growth is the number one mission of this Government as we deliver on our Plan for Change. Over the coming weeks and months, the Chancellor will leave no stone unturned in her determination to deliver economic growth and fight for working people."

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But Matthew Ryan, head of market strategy at global financial services firm Ebury, said of the market moves: "This is a damning indictment of Labour's fiscal policies, particularly the hike to employer NI (National Insurance) contributions, which businesses have already warned will lead to higher prices and a worsening in labour market conditions.

"We see wide ranging repercussions of this bond market sell-off. On the one hand, weak demand for UK debt raises the risk of either government spending cuts or further tax hikes to balance the country's finances, neither of which would be positive for growth.

"Elevated gilt yields are also likely to be reflected in higher mortgage rates, which would provide a further squeeze on household disposable incomes.

"These worries have placed a high premium on UK assets, and we would not rule out additional downside for sterling as a result."

(c) Sky News 2025: Rachel Reeves intervention ruled out as pound slides further