The former deputy governor of the Bank of England, Sir John Gieve has warned the Chancellor might have to increase taxes even further as the pound is falling and borrowing cost are soaring.
Sit John who was the deputy governor for Financial Stability at the bank said that later this year Rachel Reeves might be force to raise taxes or she will be forced to introduce “very severe reductions and squeezes on public services.”
As of 9am on Friday the pound was 1.2288 dollars from 1.2301 dollars the previous day and the Euro was 0.8384 pounds compared to 0.8371 the day before.
Government borrowing increased on Friday at the start of the bond markets trading and the yield on 10-year UK gilts increased to 4.84%, it did hit 4.89% on Thursday which was the highest seen since the financial crisis in 2008.
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Sir John Gieve told BBC radio, “The choice she is going to face in the Spending Review and then the Budget in the autumn is can I raise borrowing and the increase in interest rates that has happened now if it continues will decrease her scope for doing that within her rules or do I increase taxes again or do I actually institute some very severe reductions and squeezes on public services.”
Reeves has fled to China as a group of economists are warning that Labour’s plan for growth could be scuppered amid surging borrowing costs.
Goldman Sachs’ James Moberly said that the economy will grow by just 0.9% this year which comes as the Office for Budget Responsibility previously said in October after the Budget it will grow by2%.
Moberly said, “We expect higher yields to act as an additional headwind to growth via household remortgaging and weaker investment, with the increase of the last few days worth around 0.1 percentage point of additional growth drag this year.”
He added, “The rise in UK long-term yields in recent days is not driven by shifts in UK growth expectations or monetary policy, but primarily by concerns around the UK fiscal outlook.”
Dame Harriet Baldwin put pressure on the Chancellors and told GB News on Friday, “She [Reeves] needed to come to the Commons yesterday to explain how she is going to get growth and not get on a plane and flee to China.”
