The spiralling
cost of borrowing spells
trouble for Rachel Reeves –
but she musthold her
nerve
The spiralling cost of borrowing spells trouble for Rachel Reeves – but she
must hold her nerve
Jonathan Portes
There is no need to panic: the government’s overall fiscal strategy is the
right one. Spending cuts would be a mistake
Wed 8 Jan 2025 16.53 GMT Last modified on Wed 8 Jan 2025 16.56 GMT
Share• Экономика » Финансы » Финансовый рынок » Рынок ценных бумаг » Ценные бумаги » Акция (финансы)
• Экономика » Бизнес » Корпоративное управление » Акция (финансы)
• Государство » Законы и право » Правовая система России » Акционерное право » Акция (финансы)
T he cost of UK government borrowing is higher than it has been since just
before the global financial crisis• Финансовый кризис of 2008. The yield• Экономика » Финансы » Доходность
• Экономика » Финансы » Финансовый рынок » Рынок ценных бумаг » Ценные бумаги » Доходность on 10-year gilts – the
interest• Экономика » Финансы » Процентный доход rate the government is paying on the £4.25bn it borrowed today to
finance• Экономика » Финансы » Доходность
• Экономика » Финансы » Финансовый рынок » Рынок ценных бумаг » Ценные бумаги » Доходность
• Экономика » Финансы » Процентный доход
• Экономика » Финансы » Финансовый рынок » Рынок ценных бумаг » Ценные бумаги » Акция (финансы)
• Экономика » Бизнес » Корпоративное управление » Акция (финансы)
• Государство » Законы и право » Правовая система России » Акционерное право » Акция (финансы)
• Экономика » Финансы » Государственные ценные бумаги the deficit – is about 4.5%, nearly five times what it was a decade
ago, and higher than at any time during the Liz Truss meltdown.
So have the so-called bond• Экономика » Финансы » Государственные ценные бумаги vigilantes come after Rachel Reeves, selling off
their holdings of government bonds en masse as they did after Truss and Kwasi
Kwarteng’s budget? Not really. The Truss debacle was the consequence of a
toxic cocktail of irresponsible tax cuts, institutional vandalism and a
near-death spiral in an obscure part of the pensions market, all of which were
UK-specific. By contrast, since the start of 2023, UK long-term interest• Экономика » Финансы » Процентный доход rates
have broadly followed US ones upwards. While part of this reflects the fact
that UK inflation• Экономика » Финансы » Инфляция
• Экономика » Макроэкономика » Макроэкономические индикаторы » Инфляция has been somewhat more persistent than the Bank of England
hoped, it is mostly driven by global developments, and especially those in the
US, where growth and inflation• Экономика » Финансы » Инфляция
• Экономика » Макроэкономика » Макроэкономические индикаторы » Инфляция are somewhat higher than expected. It’s this,
far more than anything the new UK government has done, that has driven the
rise in borrowing costs.
And while most of the attention here has focused on Donald Trump’s plan to
increase tariffs, arguably an even bigger risk to the UK and global economy is
what he will do on taxes and spending. Higher US budget deficits usually mean
higher US interest• Экономика » Финансы » Процентный доход rates and a stronger dollar, and that appears to be
precisely what markets are expecting. That in turn will mean higher UK rates,
pushing up the deficit and hitting growth at the same time. So things may well
get worse before they get better – and there is little or nothing we can do
about that.
Unfortunately, all this means that our room for manoeuvre is limited. In
October 2022, reversing the Truss budget was enough to restore confidence in
fairly short order. That option is not available now.
Most immediately, the rise in the cost of borrowing further constrains what
was already shaping up to be an extremely difficult spending review, given the
pressures on public services. While Reeves’s sensible decision to change the
debt rule has given the government welcome space to increase public
investment, spending on interest• Экономика » Финансы » Процентный доход payments hits her other rule – that current
spending should be covered by tax revenues. And this rule, which has a long
history and is grounded in economic theory• Экономика » Экономические журналы » Economic Theory, is not one that can sensibly be
fudged or tweaked.
So how should the government respond? First, don’t panic. The government’s
overall fiscal strategy – shoring up public services in the short term by
putting up taxes, and then looking over the longer term to improve public
sector productivity – is the right one. Nothing about what is happening in
markets now changes that. Higher taxes or spending cuts in the short term
would be bad economics and bad politics – and there is no reason to believe
that the markets would react well to either.
Second, look to the longer term. Structural pressures on public finances are
driven by an ageing population and the resulting pressures on health spending,
social care and pensions, as well as the consequences of state failure on
issues such as the special educational needs system in schools and the rise in
the number of people out of work for health reasons. The UK’s fiscal
credibility will ultimately be determined by how it addresses these issues.
Third, focus on delivery. If, for example, the extra spending allocated to the
NHS over the next two years, coupled with the reforms announced last week,
genuinely helps to reduce pressures on GPs and hospitals and get waiting lists
down, that will mean less need for more spending in the later years of this
parliament, when the fiscal constraints really begin to bite.
Fourth, remember that it is growth that really matters from an economic and a
fiscal perspective. If the economy stagnates, we will remain in the economic
doom loop of the past 15 years. There is a huge agenda here, on everything
from planning and infrastructure reform to the “ modern industrial strategy ”
we have been promised, to repairing our economic and trading relationship with
the EU. This also means not doing stupid things that make matters worse.
Immigration is now falling sharply , as forecast by the OBR. Imposing
numerical caps or further restrictive policy changes would be bad for economic
growth and the fiscal position.
None of this is easy. Ten years ago, the markets were saying loudly “borrow
and spend”. George Osborne• Объект человек » Персоналии по алфавиту » Персоналии на Дж » Осборн, Джордж and David Cameron• Объект человек » Персоналии по алфавиту » Персоналии на Дэ » Кэмерон, Дэвид ignored them, and we are still
paying the price for that catastrophic failure. Today’s risks and
opportunities are quite different, but Reeves and Keir Starmer, if they hold
their nerve, can still avoid another lost decade.
Jonathan Portes is professor of economics and public policy at King’s College
London and a former senior civil servant
Министр иностранных дел Великобритании в 2023-2024 годах Осборн, Джордж
Министр финансов Великобритании в 2010-2016 годах сми Economic Theory
