The cost of government borrowing has skyrocketed in the wake of some key economic advisor changes by the Prime Minister.
The embattled Chancellor is hanging on to her job despite several high-profile mis-steps (Image: Getty )
Rachel Reeves is facing a major crisis of soaring borrowing costs to fund Britain’s national debt after Sir Keir Starmer installed a new team of economic advisors. The Chancellor is now in charge of the purse strings against a backdrop of yields on 30-year UK gilts rising to a 27-high high of 5.64% on Monday.
Gilts are UK Government bonds purchased usually large institutions like pension funds. They are a way for governments to raise funds by borrowing money from investors and effectively giving them an IOU to pay it back at a later date. For investors, the bonds are seen as relatively safe because governments usually pay back their debts. However, the yield on the gilts, the return the investors get over the term of the bond in the form of interest rates, has been steadily rising and so increasing the cost to the Treasury of servicing the debt. The latest spike on the yields for 30-year bonds came after the Prime Minister moved Rachel Reeves deputy Darren Jones from Number 11 to a new post at Number 10 as his Chief Secretary.
Rachel Reeves and Keir Starmer have faced tough economic conditions (Image: Getty )
Treasury minister James Murray replaced Mr Jones as Treasury chief secretary, and will now effectively be acting as Ms Reeves’s deputy. Chipping Barnet MP Dan Tomlinson has replaced Mr Murray as Treasury exchequer secretary.
The appointments follow Sir Keir’s recruitment of Baroness Minouche Shafik, an economist and former president of Columbia University in New York, as his chief economic adviser. Lady Shafik’s recruitment is part of a move to build economic expertise within the Government ahead of the budget this autumn, when Ms Reeves is expected to have to make tough tax and spending decisions to plug what Labour claim is a £50 billion black hole in the public finances.
Simon French, the chief UK economist at City stockbroker Panmure Liberum, told the Telegraph the reaction of the bond markets on Monday shows the market does not have confidence in Downing Street’s new economic team.
He said: “The immediate market reaction is not exactly a vote of confidence on these moves.”
James Athey, a bond trader at Marlborough, said he thought “the economy is weak and unproductive”, adding: “Difficult decisions are needed and this government has already demonstrated they are unwilling or incapable of making them. With inflation as high as it is, investors are demanding a higher risk premium at the long end.”
The Chancellor is facing skyrocketing borrowing costs (Image: Getty )
As part of the PM’s reshuffle of advisors, Tim Allan, a former adviser to Sir Tony Blair’s government, has been appointed the Government’s executive director of communications. James Lyons, who had been director of strategic communications within No10, has left his role after a year. As he left, the former print journalist said his role at the heart of Government “was never intended as a long haul”.
Economist Paul Johnson said: “It’s extraordinary. More than a year into this Government, they’re only just working out that they might need some senior economic expertise within Number 10, both at a political level and at the advisor level.
“It’s yet another example, I think, of how staggeringly unprepared this Government was for government, despite the fact that they essentially knew they were going to win the election some considerable time out,” he told Times Radio.
Kevin Hollinrake, the Conservative Party chairman, said: “This chaotic reshuffle shows a Downing Street in crisis – totally distracted from fixing the damage they’ve done to the economy, jobs and small businesses.
“It’s like firefighters arguing about the hose whilst the house burns down.
“Inflation has doubled, borrowing costs have soared, and Britain is on the brink of a debt crisis, with working people left to pay the price through higher taxes.
“Only the Conservatives, under new leadership, will take a responsible approach to the public finances and ensure our economy grows whilst we live within our means.”
