Economists warn Chancellor Rachel Reeves faces tough choices due to economic uncertainty and potential US defence spending demands.
Economists have said that the Chancellor was facing a “toxic combination” of circumstances including flatlining growth, high interest rates and geopolitical tensions. And the national finances could come under even greater strain as a result of US pressure to increase defence spending , with Donald Trump saying Nato members should raise their military expenditure to 5 per cent of GDP.
On Wednesday, the yield on benchmark 10-year UK gilts – which reflect the cost of borrowing – climbed to its highest point since the 2008 financial crisis. With the Office for Budget Responsibility due to update its financial forecasts in late March, it could wipe out the “headroom” which Reeves gave herself in the Budget to stay within her self-imposed fiscal rules. Robert Wood of Pantheon Macroeconomics said: “Higher government borrowing rates will have wiped out Chancellor Reeves’s headroom, requiring tax hikes or spending reductions at the next fiscal event if yields stay where they are.”that the £10bn of fiscal headroom the Chancellor had given herself provided little room for manoeuver. “It’s definitely possible that the rise in borrowing costs that we’ve seen does back the Government into a corner when it comes to the fiscal arithmetic,” he said. “When you’re operating with a low level of headroom, you are at the mercy of things that change in the forecast.” At the same time, the UK is contending with a push from Trump for Nato members to dramatically increase defence spending.Speaking at a press conference at his Mar-a-Lago resort in Florida on Tuesday, the Republican president-elect said: “I think Nato should 5 per cen
Economy Borowing Costs Tax Increases Spending Cuts Defence Spending
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