Sun, 07 Sep 2025

Sun, 07 Sep 2025 Market ructions and cabinet reshuffles will help shape Reeves' Budget

OBR spreadsheets, bond markets, and backbench unhappiness on cuts will all influence the chancellor's thinking.
The UK government has faced a challenging first week back, marked by resignations and market volatility. Despite speculation about her own position, Chancellor Rachel Reeves will hold the briefcase on November 26. She has dismissed concerns over a potential £50bn black hole in public finances and denied that fragile global bond markets reflect any issues with her personal or government credibility. Reeves pointed out that global trends have driven the recent increase in borrowing costs, which have since fallen after weaker-than-expected US jobs data. The Bank of England's governor Andrew Bailey also played down concerns over long-term debt, noting it makes up a small fraction of overall government debt and that demand for UK debt remains strong. However, experts warn that fragile global markets are sensitive to unattractive economic or political factors, which could quickly turn problematic for the UK. The Chancellor's team is likely to use this as an opportunity to argue against further borrowing through watering down borrowing limits, instead advocating for higher taxes or lower spending. The Office for Budget Responsibility (OBR) will soon deliver its judgement on UK productivity, a critical factor in determining how much of a gap there is between spending and tax income. The Chancellor's team is expected to haggle with the OBR over its forecast, which could influence the size of any tax rises or spending cuts in the upcoming Budget. Ministers are bracing themselves for speculation about potential Budget revenue raisers, including windfall taxes on bank shares. The Chancellor has not ruled out restraint measures through the Welfare Bill but emphasized her commitment to long-term, pro-growth reforms to the tax system.
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