THE Prime Minister has said Chancellor Rachel Reeves is “absolutely right” to take a “ruthless” approach to public spending as he gave her his backing to stay on at the head of the Treasury.
Reeves has been coming under sustained pressure in recent weeks after figures from the Office for National Statistics (ONS) showed the economy had completely flatlined in the three months since Labour took power.
The revelation was humiliating for a Labour party who had come into office pledging that growth would be their number one priority – and that it would be delivered before anti-poverty measures.
The pressure has only continued to grow on Reeves as the pound sterling fell another 0.5% to 1.214 US dollars on Monday, having last week hit its lowest level against the dollar since November 2023.
And UK Government bonds – also known as gilts – continued to see 10-year yields hit fresh highs not seen since 2008, up six basis points at 4.9%.
The yield on 30-year gilts also hit new 27-year highs, up five basis points at 5.5%. Yields move inversely to bond prices.
Reeves is facing pressure due to the resultant surge in the cost of servicing government debt, which puts her own fiscal rules in danger of being broken.
The Telegraph reported that a letter from the Chancellor’s office at No 11 Downing Street had ordered Cabinet ministers to be “ruthless” with spending cuts, admitting that “difficult” decisions would have to be made.
Answering questions following a speech on AI in London, he said: “We’re going to stick to the fiscal rules. That is a very important thing that we’ve said throughout.
“We set out those fiscal rules very early on in the day because we knew that the missing ingredient in recent years has been economic stability, we’re determined to bring about that economic stability, and that’s why the fiscal rules are absolutely central to what we do.”
He said changes to planning rules, the industrial strategy, and embracing artificial intelligence would fuel growth.
“That is why I’m confident in our mission for growth and I’m confident, completely confident in my team.”
But, he added: “We never pretended, nor would anybody sensibly argue, that after 14 years of failure, you can turn around our economy and our public services before Christmas.
“Before the election, I said it’s not going to be possible to do this in six months. It’s going to take time.”
An increasingly desperate Labour have in recent weeks asked Government watchdogs such as Ofgem to come forward with ideas to drive economic growth.
Sharing a Guardian story about Reeves considering "steeper cuts to public services to repair government finances", SNP Cabinet Secretary Shirley-Anne Somerville shared an increasingly infamous clip of Scottish Labour leader Anas Sarwar.
"Read my lips: no austerity under Labour," the MSP said ahead of the General Election.
🤔 https://t.co/6HoQKiyW64 pic.twitter.com/Z6s10wIzBg
— Shirley-Anne Somerville (@S_A_Somerville) January 13, 2025
Elsewhere, Starmer’s claim that Labour will bring “stability” to the economy comes despite a pledge on Monday to fund a new supercomputer in the UK – just months after pulling funding from a supercomputer project in Edinburgh.
SNP MSP David Torrance told The National: “Just a few months after coming into office and promising to deliver growth, the UK Labour Government has pulled the plug from the ground-breaking £800m supercomputer project at Edinburgh University, undermining Scotland’s world-leading data, AI, and tech sector.
“Deciding now to develop this technology elsewhere would be another betrayal from this UK Labour Government towards Scotland.”
Reeves was criticised for flying out to China while the financial troubles continued. The Labour Government insisted she had done so to secure “the benefits of agreements worth £600 million to the British economy”.
Asked by BBC Breakfast if the Chancellor was right to make the journey, Cabinet Office minister Pat McFadden said on Monday that she “definitely” was.
“I think the people saying she shouldn’t have gone are wrong and making a bad mistake,” he said.
“It is absolutely right for the Chancellor of the Exchequer, for the chief economic voice in the United Kingdom, to go and to beat the drum for British business and for investment in the United Kingdom.
“It was in the national interest that the Chancellor went to China, and that is why it is absolutely right that she went.”
