Rachel Reeves has been dealt a major blow after a group of economists warned that surging borrowing costs could stifle Labour's plan for growth.
Goldman Sachs' James Moberly said the UK economy will now only grow by a meagre 0.9 per cent in 2025, down from the two per cent predicted by the Office for Budget Responsibility at the time of the Budget in October.
Higher interests rates, made worse by surging borrowing costs, seemingly worsened the fiscal situation facing Britain.
Speaking while the Chancellor travels to China, 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."
Rachel Reeves
PA
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.”
Reeves was yesterday urged against embarking on her trip to China, instead being told to focus on solving Britain's economic woes at home.
The surge in borrowing costs has resulted in 30-year gilt yields hitting levels not seen since 1998 and 10-year gilt yields spiking to a post-2008 peak.
The pound has also tumbled against the dollar as a result of market turmoil, falling from a summer high of $1.34 to a 15-month low of $1.23.
The pound has fallen sharply against the Dollar BloombergSpeaking in the House of Commons after being granted an urgent question, Stride asked: "Where is the Chancellor?"
Stride added that it was a "bitter regret" that the Chancellor was "nowhere to be seen" as the premium on UK borrowing costs compared to German bonds reached its highest level since 1990.
Tory grandee Dame Harriet Baldwin put more pressure on Reeves after the Chancellor failed to address questions in the House of Commons yesterday.
Speaking to GB News this morning, Baldwin said: "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."
Rachel ReevesGetty ImagesAnd it appears the Chancellor is losing support from her own Cabinet colleagues.
A source told The Times: "They've lost the plot!"
Another swiped that the Treasury is in "make-or-break territory now", while another added: "This is all starting to look like Healey having to come back from Heathrow, isn't it?"
Economists have also warned that the UK is facing a 1970s-style debt crisis.
Martin Weale, a respected former member of the Bank of England’s rate-setting monetary policy committee, told Bloomberg News: "We haven’t really seen the toxic combination of a sharp fall in sterling and long-term interest rates going up since 1976. That led to the IMF bailout."
Lisa Nandy
PAHe added: "So far we are not in that position but it must be one of the Chancellor’s nightmares."
Nigel Green, chief executive of financial advisory firm deVere, also said: "The Chancellor’s inability to reassure markets is fanning fears of an economic implosion, with austerity looming as the only option to restore credibility – a brutal throwback to 1976."
However, Culture Secretary Lisa Nandy defended the Chancellor over her three-day Beijing trip.
Speaking to Sky News this morning, Nandy said it was “absolutely” the right decision for the Chancellor to go to Beijing.
Nandy also stressed that Reeves is “relentless in her pursuit of growth”.
