Britain faces fresh economy blow as pound plunges and Treasury calls for 'ruthless spending cuts'
13 January 2025, 12:00 | Updated: 13 January 2025, 12:02
The pound has dropped to its lowest value against the dollar since November 2023 while government borrowing costs have continued to rise.
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Chancellor Rachel Reeves flew back from China into an economic storm, with 30-year government bonds jumping to a fresh 27-year high, extending a gilt market sell-off into a second week.
The Treasury has ordered cabinet ministers to be "ruthless" in identifying public spending cuts. CBI chief Rupert Soames said 'confidence and trust' had been 'bruised' by the Chancellor and firms will have no choice but to hike prices and cut jobs.
Concerns about inflation and the imminent Trump presidency have prompted turmoil on global markets in recent days.
The pound at 9am today was 1.2141 dollars compared to 1.2212 dollars at the previous close.
The euro at 9am was 0.8417 pounds compared to 0.8383 pounds at the previous close.
The growing economic woes have sparked fears over mortgage rates going up.
Cabinet Office minister Pat McFadden told LBC this morning that Ms Reeves’ Budget had taken some ‘punches’ but that it would help raise money for public services.
He told Nick Ferrari: “Rachel Reeves is the Chancellor for a good reason. She is the person qualified to do the job.
“When we came into office six months ago, we came in as a good team , we didn’t have any of the rivalries and things that had afflicted other governments and we govern as a good team.
“Rachel Reeves is doing a good job with the support of the whole Cabinet.”
Ms Reeves has vowed to stand by her fiscal rules, calling them “non-negotiable.”
Her mission to China was overshadowed by further turmoil in the gilt markets.
Ms Reeves insisted over the weekend that her fiscal rules are "non-negotiable".
Speaking to reporters while in Beijing, where she was seeking to rebuild economic ties with China, she pledged to "take action to ensure that we meet those fiscal rules".
Increases in the Government's borrowing costs have sparked concern that she will be unable to meet her debt and spending targets, requiring either tax rises or deeper spending cuts when she delivers a fiscal statement at the end of March.
Some traders fear a deepening slump for the pound, which has been hit hard by the gilt market woes, as well as stubborn inflation, high government borrowing and concerns over incoming US president Donald Trump and his plans for tariffs on overseas trade.
Sterling's weakness has been compounded by a stronger dollar, as markets see fewer interest rate cuts coming down the line.
Official figures due on Wednesday are set to show another rise in UK inflation, which could deepen the pound's troubles.
