Rachel Reeves, the Chancellor, faces calls for a potential £9 billion tax increase to prevent a new wave of austerity impacting public services. The record-breaking tax hikes in her budget, designed to bring economic stability to the UK, triggered a rise in government borrowing costs and caused concern in financial markets. The yield on 10-year government bonds surged to its highest this year, while the pound dipped to a two-month low against the dollar.
Some financial analysts likened the market reaction to the turmoil seen after Liz Truss’s mini-budget, though on a much smaller scale. City traders warned that short-term borrowing levels might disrupt the Bank of England’s interest rate cuts. As borrowing costs rose, concerns grew that lenders could hike mortgage rates, putting further strain on households.
Despite the International Monetary Fund’s endorsement of the budget, some experts remain skeptical about its long-term impact on economic stability and growth. Paul Johnson, from the Institute for Fiscal Studies, praised Reeves for moving away from Conservative policies but suggested that an additional £9 billion may be necessary to avoid cuts to essential services like justice and local councils.
The Resolution Foundation noted that the budget, while boosting public services like schools, NHS, and the justice system, could still strain household incomes due to the rise in employer national insurance. Reeves insisted that her “number one commitment” remains economic stability, asserting that the budget has put the UK’s finances on a “stable trajectory.” However, some argue that further action will be needed to drive growth and improve living standards before the next election.
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