(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves returns to the UK from China on Monday with the Labour Party keen to brush off market turmoil around its fiscal difficulties and emphasize the government’s long-term ambitions.
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UK debt costs soared last week as gilts were punished particularly hard amid a global bond rout, while the pound fell to its lowest level since late 2023 — a combination that implied jitters around Britain’s rising inflation, weak growth and the sustainability of Labour’s plan to ramp up public spending.
Sterling fell further Monday morning to around $1.214, down from $1.256 less than a week ago, while some traders expect gilts to follow Friday’s drop in US Treasuries.
Reeves insisted in China over the weekend that her fiscal rules, which are self-imposed and designed to lend credibility to the government’s plans, were “non-negotiable.” Higher gilt yields have put Labour on the brink of breaking the rules, meaning she could need to rein in departmental spending ahead of a crunch fiscal update from the Office for Budget Responsibility on March 26.
“We will take actions to ensure that we meet those fiscal rules,” Reeves said. She was in China to boost trade relations between the two countries, ignoring calls from opposition parties to cancel the trip in light of a torrid week for UK assets.
“The chancellor should be here at her station, reassuring markets, and trying to get some sense that this government gets the depth of the problem and it has some clear plans,” Shadow Chancellor Mel Stride told the BBC on Sunday.
Reeves plans to push ahead with a series of speeches in the coming weeks on how to boost economic growth, which she has said is necessary to improve public finances.
Prime Minister Keir Starmer will promote a key area of growth — artificial intelligence — on Monday, with an action plan to implement 50 recommendations made in a report by tech entrepreneur Matt Clifford. Starmer will pledge to make Britain the “world leader” in AI, saying it could add £47 billion ($57.3 billion) to the economy each year by boosting productivity.
Labour promised to turbo-charge the UK’s rate of growth to the top of the Group of Seven nations but GDP has stagnated since the party won a convincing landslide in last July’s general election. Critics have pointed to rising employment costs and the threat of more stringent workplace regulations.