BRITAIN last night recalled the dark 1970s with a debt crisis, threatened strikes and a Labor chancellor under siege.
Rachel Reeves is facing huge pressure to pull out of a controversial trip to China this weekend as borrowing costs have soared to levels beyond the worst of the doomed Liz Truss era.
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Chancellor Rachel Reeves is under huge pressure to scrap a controversial trip to China as borrowing costs soar to levels beyond the worst of the failed Liz Truss eraCredit: PA
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Labor is taking Britain back to the 1970s, with strikes, mounting debt and a looming fall in the poundCredit: Getty
The chancellor’s tax hike budget, which hit employers with a big rise in national insurance, was blamed for the turmoil in the market.
And Mrs Reeves was last night warned that if she went to the Far East she risked becoming the next Kwasi Kwarteng — Mrs Truss’ chancellor who infamously left the UK as the economy collapsed in 2022.
The warning came amid threats of industrial action, such as the Winter of Discontent strikes of 1978 and 1979, with teachers threatening to walk away.
Economists also highlighted the prospect of a “nightmare” debt crisis like the one in 1976 that forced Jim Callaghan’s Labor government to turn to the International Monetary Fund for help.
They said the chancellor’s small £9.9bn leeway to keep the government within its own borrowing rules had all but been wiped out – opening the door to new tax rises or taking the ax to public spending.
This is the reason for the brutal fall of the chancellor from the oversight body of the Office for Budget Responsibility when she gives the official latest information on the state of the economy on March 26.
The Treasury insisted there was “no need for immediate intervention” as it sought to calm concerns about Britain’s shaky financial markets.
But the pound fell to a 14-month low yesterday, falling to $1.23 against the dollar.
Sterling’s selloff was significantly worse than any other major world currency.
The Tories have attacked Ms Reeves, suggesting she should be sacked over the fall in her October budget.
How to protect your pension and inheritance from the new budget
Shadow Home Secretary Chris Philp told our show Never Mind The Ballots: “I think the Chancellor should stay in the UK fixing the mess her budget has created.
“Bond yields are higher than when Kwasi Kwarteng was fired.
“The whole government needs to be sacked, frankly, including Rachel Reeves, because they’ve taken taxes, they’ve trampled pensioners, they’ve trampled farmers.
“They break companies with their high taxes.
“And this is the result, because the bond market can see that our economy is being squashed by this Labor government.”
Economists say the pound has been partly hit by the strength of the dollar — but its weakness against other currencies suggests there is a “capital flight” from the UK.
Typically, currencies rise when government bonds fall.
But Martin Weale, former head of the Bank of England exchange rate, said: “We have not seen the toxic combination of a sharp fall in sterling and long-term interest rates rising since 1976.
“That led to the IMF bailout.”
Mr Weale, now professor of economics at King’s College London, added: “We are not in that position at the moment but it must be one of the chancellor’s nightmares.”
The interest charged on 30-year government bonds continued to rise yesterday to 5.4 percent, their highest level since 1998.
The government issues bonds, known as gilts, when it needs to raise money.
Interest on them is called yield.
When the price of the bond falls, the yield increases to reward the investor for the additional risk of holding the cheaper asset.
But the yield on the benchmark 10-year gilts reached 4.86 percent, the highest since the 2008 global financial crisis.
High street banks use 10-year gilt rates to set mortgage rates, suggesting families face expensive home loans for an even longer period.
Investors worry that this will further reduce incomes and cause a decline in consumption and economic growth.
While there is a sell-off in global bond markets, the pain is even greater in the UK where there is a thin buffer of spending.
Analysts estimate that the recent rise in bond yields has increased the cost of public borrowing by almost £9bn.
This will virtually wipe out Ms Reeves’ £9.9bn buffer.
But Finance Minister Darren Jones claimed the markets were working in an “orderly way”.
Adding to the 1970s-style woes, the National Education Union said it would hold an online vote on industrial action over the government’s 2.8 per cent pay rise proposals.
But a spokesman for Prime Minister Sir Keir Starmer urged the union to “put the interests of students first”.
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Sixth form teachers are on strike in London this weekCredit: EPA
The word is not her connection
By Ashley Armstrong
GOVERNMENT bonds are back in the headlines – which is bad news for the economy and the Chancellor.
Rachel Reeves built her rise to 11th place on the very promise of being the safe opposite of Liz Truss’s market crash.
Comparisons with the 2022 gilt crisis are a bit exaggerated.
The bond sell-off was not so sudden, nor did it require Bank of England intervention – yet.
But more worryingly, experts are comparing it to the nightmarish 1970s as the pound is also being punished.
This suggests global investors are taking a very dim view of Reeves’ budget and the UK’s growth hopes.
A weaker pound means rising demands for interest on 10-year government bonds.
High street banks use them to determine mortgage lending and suggest that we will be putting up with more expensive home loans for longer.
Tight household finances will stifle consumption and slow growth.
So much for Reeves’ promised “Securonomics”
Where is Rachel?
By Ryan Sabey
CHANCELLOR Rachel Reeves was last night mocked by critics of the market turmoil who demanded to know: “Where’s Wally?”
She was attacked for failing to appear in the Commons for a debate on the crisis – while mock-ups of her in a red and white Wally outfit appeared on social media.
Her deputy, Darren Jones, filled in for her while she was on a business trip to China.
Shadow cabinet minister Andrew Griffith said: “At this critical moment, the Chancellor has not turned up. Where’s Rachel?”
Former party chairman Sir Jake Berry shared a picture on X of Ms Reeves looking in a mirror — and seeing a reflection of Liz Truss.
Sir Jake said in the post: “Mirrors, mirrors on the wall, who crashed the bond markets worst of all?”
Former Prime Minister Mrs Truss was forced out of Downing Street in the wake of the economic meltdown after her mini-budget saw mortgage rates rise for many homeowners.
Categories: Optical Illusion
Source: HIS Education