RACHEL Reeves has vowed to “make the UK better off” on her visit to China amid fury over a major debt crisis and a plummeting economy at home.
The under-siege Chancellor met Chinese vice-premier He Lifeng on Saturday for the first UK-China economic and financial dialogue since 2019.
Ms Reeves hailed the meeting as a “significant milestone” in UK-China relations.
She called for more trade and investment between the two countries against a “more complex and more challenging” geopolitical background.
Ms Reeves said: “We must seize this opportunity to set a course for a stable and mutually beneficial relationship with one another.”
But her mission to China was overshadowed by further turbulence in the gilt markets.
During a visit to bicycle-maker Brompton’s flagship Beijing store on Saturday, she chose not to provide continuous updates on the financial markets in the UK.
However the Chancellor said the rules she set for herself in October were essential for economic stability.
She continued: “The fiscal rules laid out in the Budget are non-negotiable.
“Economic stability is the bedrock for economic growth and prosperity.”
The rise in gilt yields to their highest level since 2008 effectively increasing the cost of government borrowing.
There were worries this week that the Chancellor might struggle to adhere to her guidelines on debt and expenditure without implementing more extensive reductions than initially anticipated.
The spending review, due later this year, is already expected to require departments to make efficiency savings worth 5 per cent of their budgets.
However, since more funds are directed towards servicing government debt, that amount may ultimately rise, particularly because Ms. Reeves had already dismissed the idea of additional tax hikes.
The Telegraph has also reported cuts to welfare are also being considered.
The alternative would be breaching her fiscal rules, a prospect that Paul Johnson of the Institute for Fiscal Studies described as “pretty scary for the markets” which were already “concerned about the UK position”.
Word not her bond
By Ashley Armstrong
GOVERNMENT bonds are back in the headlines — in bad news for the economy and the Chancellor.
Rachel Reeves built her run-up to No 11 on the very promise she would be the safe opposite to Liz Truss’s market meltdown.
Comparisons to 2022’s gilt crisis are slightly overdone.
The bond sell-off has not been as sudden, or required the Bank of England to step in — yet.
But more worryingly, experts are comparing it to the nightmarish 1970s because the Pound is being punished as well.
It suggests global investors are taking a very dim view of Reeves’ Budget and the UK’s hopes of growth.
A weaker Pound means surging interest demands on ten year government bonds.
These are used by high street banks to price mortgages and suggest we will suffer more expensive home loans for longer.
Squeezed household finances will stifle spending and depress growth.
So much for Reeves’ promised “Securonomics”.
The turmoil in the gilt markets has overshadowed Ms Reeves’s trip to Beijing.
Conservatives accused the Chancellor of having “fled to China” rather than explain how she will fix the economy.
The trip is part of the Labour Government’s push for greater engagement with Beijing after a freezing of relations under previous Conservative prime ministers.
Ms Reeves was accompanied by a delegation including Bank of England governor Andrew Bailey and Financial Conduct Authority chief executive Nikhil Rathi.
Following the meeting, the Chancellor announced that agreements had been reached worth £600million to the UK economy over the next five years.
While “re-engagement” with China “already sets us on course to deliver up to £1billion of value for the UK economy”.
But she also emphasised that economic ties must not weaken national security and said the two countries had “an obligation to be frank with each other where we disagree”.
As well as resetting relations with Beijing, the new Government has promised to “challenge” China where necessary.
THE SUN SAYS Rachel Reeves is in a hole
RACHEL Reeves will return to Britain from her ill-timed trip to China facing the most blinding financial headache.
Make no mistake: it’s been a week from hell for the Chancellor.
There are worrying signs that forecasts of growth this year of two per cent will be downgraded.
Businesses are warning her Budget will hit investment, put jobs at risk and cause inflation to spike.
Mortgage rates will now stay higher for longer — hitting millions of families.
And over the past few days, markets have taken fright at Britain’s massive borrowing — with some traders now mockingly referring to the falling Pound as the “Great British Peso”.
Reeves faces spending billions more on servicing our ballooning debt.
Meanwhile, the union barons — whose members were handed £38billion of public money in pay rises last year — are already biting the Left hand that feeds.
Teachers want a second inflation-busting rise in a year and, of course, the greedy train drivers are striking again.
The Chancellor is in a hole — far bigger than the £22billion black hole she has repeatedly blamed on the Tories.
On the long flight back from Beijing she may mull her limited options.
Further tax rises would snuff out any hope of growth, enrage hard-up voters and surely be political suicide.
So the only way out of this mess is for her to embark on wide and deep spending cuts, and a massive drive to improve public sector productivity.
The unions would no doubt fight that tooth and nail.
But the Government doesn’t now have the luxury of feather-bedding their civil service comrades.
Voters will be praying the Chancellor’s planned speech on the economy next week will signal fresh ideas.
And that it will be relentlessly focused on getting growth and slashing waste.
It comes amid long-standing human rights concerns about the treatment of Uighur Muslims, constraints on freedoms in Hong Kong and its support for Russia’s war in Ukraine.
When asked by reporters in Beijing if closer ties to China carried any risk for the UK, Ms Reeves said: “We need to make sure we have a pragmatic and good relationship with countries around the world.
“That is in our national interest. It’s what our allies around the world do and it’s what I will be pursuing as Chancellor, always acting in the national interest while looking to help British businesses export overseas.”
After the meeting with Mr He, the Chancellor said she had raised issues of national security, along with Russia’s invasion of Ukraine and concerns about human rights in Hong Kong.
She said: “Not every conversation will be easy. However, it is essential and in the UK’s national interest that as two major economies the UK and China commit to building a stable, pragmatic bilateral relationship.”
After her meetings in Beijing, Ms Reeves is expected to travel to Shanghai.
