Rachel Reeves loses control as she’s told ‘You can’t borrow more money’ | Personal Finance | Finance

The Chancellor is in a bind. UK borrowing costs are rising fast, markets are getting twitchy, and Labour is edging towards a crisis.

Last week, I reported that UK borrowing costs had hit the highest since the financial crisis. It’s actually worse.

Thirty-year gilt yields have now climbed to their highest since the early 1990s. That’s more than three decades ago.

This isn’t just a technical blip. It matters. The higher gilt yields go, the more the nation spends on debt interest. We already blow £9billion a month just servicing our huge national debt.

That’s money straight down the drain.

Investors are losing faith in Labour. The bond market is now demanding a premium to lend to us, and it’s hard to blame them.

Reeves has already borrowed £50billion more than planned since the election.

She made a token effort to cut spending, but Starmer is forcing her to revive the winter fuel payment cut, review disability cuts and possibly even scrap the two-child benefit cap.

All of which will cost billions that she doesn’t have.

Despite hiking taxes by £40billion in her Budget, Reeves has left herself with less than £10billion of fiscal headroom. Even the smallest wobble in growth, productivity or interest rates can knock her off course.

And it’s already happening. Borrowing hit a thunderous £20.2 billion in April, some £2.3billion more than forecast.

The bond market is getting nervous. Respected financial industry newspaper Morning Star reports growing alarm among investors. They’re the ones we turn to when we need to borrow, and they don’t like what they see.

Long-term gilt yields are climbing fast.

The 30-year yield has surged past 5.4%, up 72 basis points in a year. That’s a steep move, and a clear signal investors are reassessing the risk of lending to the UK.

They’re edging up as I write this.

Bond yields are rising elsewhere, notably in the US, where Presidnet Donald Trump plans Liz Truss-style unfunded tax cuts, which will add trillions to the mighty US debt mountain.

But ours are still higher.

Neil Mehta at BlueBay Asset Management says it’s now “very unlikely” Reeves will meet her own rules, accusing the government of abandoning any pretence of fiscal credibility.

Gordon Shannon at TwentyFour Asset Management warned: “The government cannot talk its way out of problems it has spent its way into; nor am I convinced that it can tax its way out.”

Even the IMF has weighed in, effectively telling Reeves to rein it back. It said in a report: “There is limited space to finance this spending through extra borrowing, given high debt and elevated borrowing costs.”

It’s like the 1970s again, with the IMF telling us what we can and cannot do.

Reeves now faces two bad options. Raise taxes again, which would further choke growth and drive talent abroad. Or cut spending, which would stoke a party rebellion.

The third is to rewrite her own fiscal rules, which she previously called “non-negotiable”, and look very silly.

The Chancellor is playing a tight fiscal game and is now cornered. Every tick higher in bond yields turns the screw.

Soon, it may be too tight for her to breathe.