Furthermore, in an unwanted backdrop to Wednesday’s upcoming statement, the U.K.’s GDP fell by 0.1 percent in January, down from a rise of 0.4 percent in December. And government officials expect the Office for Budget Responsibility to downgrade its forecast of 2 percent growth this year to around 1 percent.
This means financial markets are watching Reeves closely. The wobble that saw government borrowing costs rise in January (before falling back down) was a sign the chancellor still has to prove her mettle. She thus wants to take immediate action on Wednesday, showing her “ironclad” rules are still “nonnegotiable” and she’s determined to meet them.
In her statement, Reeves isn’t expected to raise taxes, but she will likely cut her proposed rise in overall public spending of 1.3 percent per year in real terms from 2026 to 2027 to about 1 percent instead, saving a further £5 billion a year. The details of the squeeze will be included in her government-wide spending review in June.
Significantly, the chancellor had to head off criticism from fellow members of Prime Minister Keir Starmer’s cabinet during its March 11 meeting. In the first direct challenge to Reeves’s authority since last year’s general election, about half of the 22-strong cabinet expressed concern over the impact her fiscal rules will have on departmental budgets, including £5 billion in cuts to welfare spending — her main route to meeting her objectives, along with government efficiency savings.
Those expressing reservations included Deputy Prime Minister Angela Rayner, Home Secretary Yvette Cooper; Energy Security and Net Zero Secretary Ed Miliband, Justice Secretary Shabana Mahmood and Leader of the House of Commons Lucy Powell — all of them powerful figures.
Some ministers also cited Germany’s recent landmark decision to relax its fiscal rules in order to boost defense and infrastructure spending. But Reeves hit back, reminding that Germany’s national debt stands at 62 percent of GDP compared to the U.K.’s at 95 percent. Reeves believes the U.K. is susceptible to interest rate changes, as well as a rise in borrowing costs in line with what happened in Germany, which would add £4 billion to the country’s debt interest payments — already running at £100 billion in the current financial year.
