Can Labour save its Budget?

After the Office for Budget Responsibility’s assessment of the Budget was published on Wednesday, the cost of government borrowing started to rise. Yesterday, those costs hit their highest levels this year, with the 10-year gilt yield peaking just over 4.5 per cent and the five-year gilt yield exceeding 4.4 per cent, before settling slightly by the end of the day. 

Labour need this trend to stop. The further borrowing costs rise and the pound falls, the more expensive Reeves’s Budget becomes, as investors demand a higher return for lending to the UK. Moreover, the longer jitters persist, the more certain it will seem that markets have not bought Labour’s fiscal proposal to borrow an additional £140 billion over this Parliament. The stakes are high: the Bank of England is reported to be on ‘alert’ while Treasury ministers are trying, as publicly and prominently as possible, to remind markets of their fiscal rules which supposedly keep borrowing in check.