Could Boris Johnson’s cakeism survive the markets?

In the brief time Sajid Javid was chancellor to Boris Johnson, he spelled out to The Spectator his ‘low for long’ theory about rates: a theory which would enable the new prime minister’s ambitious spending agenda. Speaking to Fraser Nelson in December 2019, Javid was confident that the era of ultra-low interest rates and extremely favourable borrowing costs was here to stay. ‘It just felt quite ludicrous seeing that a government could borrow at negative real interest rates and not take advantage of that,’ the then-chancellor told the magazine.

Convinced these circumstances would remain for ‘at least a decade’ he was willing to borrow tens of billions of pounds for infrastructure investment, to aid Johnson’s ‘levelling up’ agenda. But there were two major caveats. Javid was critical of then-Labour leader Jerermy Corbyn’s plan to borrow to fund ‘day-to-day spending’. And if these circumstances were to change, and rates were to rise, he said, Javid’s borrowing plans would fast be adapted – or perhaps even come to an end – in response.