Economists suggest that Reeves may need to either reduce spending or raise taxes due to high borrowing costs.
Treasury Minister Darren Jones informed the House of Commons on Thursday that UK gilt markets are operating in an orderly manner.
Financial experts have suggested that Chancellor of the Exchequer Rachel Reeves may need to reduce public spending or raise taxes to adhere to the government’s fiscal regulations.
The yields on government bonds, indicating the government’s borrowing costs, reached their highest point in nearly 17 years on Wednesday.
A potential increase in the debt interest payments could impact the Treasury’s financial flexibility, despite higher borrowing and a £40 billion boost in taxes to cover the £70 billion rise in public spending.
Kallum Pickering, who is the chief economist at brokerage Peel Hunt, warned that if bond yields continue to rise, Reeves may have to make the tough choice of further tax hikes or scaling back planned public spending to maintain balance.
Reeves had committed to only one tax change event annually, expected in the autumn.
Additionally, due to fiscal uncertainty and broader global influences, the pound weakened by nearly 1% on Thursday morning, falling below $1.23, marking its lowest level since November 2023.
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