Rachel Reeves vows action on growth amid rising debt costs

UK Chancellor Rachel Reeves has pledged to improve economic growth "faster and deeper" after market turmoil led to a rise in the UK's borrowing costs. This comes as public finances are under increased pressure due to government borrowing costs reaching their highest levels in years.

Conservative shadow chancellor, Mel Stride, called it a "crisis made in Downing Street," and stated that business tax increases in the October budget damaged the UK's economic prospects. Reeves stated that she is "under no illusions" about the scale of the challenges facing the economy. It is understood she will bring forward Labour's promised industrial strategy in the next two weeks.

The Chancellor was speaking in the House of Commons after returning from a trade mission to China. In the debate, she accused Conservative critics of ignoring the "global volatility" behind rising borrowing costs in other countries such as the US, Germany and France. She told MPs: "The economic headwinds we face remind us that we should, and must, go further and faster in launching a plan for economic growth, and the policies of the last government led to a significant decline in growth."

Reeves pledged new economic policies following the World Economic Forum meeting in Davos next week. The BBC has learned that the industrial strategy, promised in the Labour manifesto, is being "fast-tracked" to help boost economic growth. Announcements for specific sectors, such as this week's strategy to boost AI, will be rolled out in the coming weeks. Reeves is at a crucial moment as Chancellor, with investors demanding higher returns on UK government bonds, known as gilts.

The yield on gilts, the rate of interest the government pays to investors, is a key indicator of market confidence. On Tuesday, the yield on 30-year gilts was 5.42%, close to its highest level since 1998. Meanwhile, the yield on 10-year debt was 4.87%, close to its highest level since 2008. If sustained, higher UK borrowing costs could add £10bn to annual debt interest by 2029-30, wiping out the £10bn of fiscal headroom the Chancellor had set aside to meet her self-imposed fiscal rules. Reeves' aides told the BBC that if the Treasury's headroom disappears, spending would be squeezed, rather than taxes raised.

Speaking in the Commons, Stride accused the government of "talking down the economy" and "undermining businesses" by raising employer National Insurance (NI) contributions in the budget. He added: "Growth has ground to a halt, inflation is rising, affecting millions, interest rates are going to remain higher for longer, and business confidence has collapsed." He argued, "This is a crisis made in Downing Street." Conservative MP Luke Evans also joined the criticism, claiming that higher bond yields showed "the markets don't believe her growth plan."

But in response, Reeves called on Evans to "get real," arguing that there is "global volatility" in the markets. She said: "I don't think it's a credible argument to suggest that the rising bond yields in the US, Germany, and France are because of decisions made by this government." The Chancellor's weekend trip to China seeking new investment has led to claims that she is surrendering to Beijing and avoiding awkward questions in Parliament. In the debate, Reeves argued that the deals secured during her visit to China would be worth £600m to the UK over the next five years.

But Stride argued that the current higher cost of debt interest would be "100 times the value of what she claims to have brought back from Beijing." The Liberal Democrats' Treasury spokesperson, Daisy Cooper, argued that the benefits of the new China deal amounted to "just five hours of NHS spending." Cooper argued that Reeves' budget was "not working" and claimed that the increase in National Insurance was "counterproductive" and a hit to struggling small businesses. Reeves defended the visit as a win for UK businesses and said the government had secured new deals on "vaccine approvals, fertilizer, whisky labels, legal services, cars and accounting."

She argued that the visit allowed her to raise concerns about human rights and trade with China. "If you're not in the room, you can't raise the difficult issues," Reeves said. On Monday, Sir Keir Starmer said he had "full confidence" in Reeves and that the government was committed to meeting its fiscal rules. But Conservative leader Kemi Badenoch accused him of failing to back her after he refused to explicitly answer at a press conference whether she would remain in post at the next election. Downing Street later confirmed that the Prime Minister intends to keep Reeves as Chancellor for the rest of this Parliament.