Rachel Reeves says she will “make changes” if needed within months to deal with Britain’s public finances amid warnings that she may have to cut spending plans or raise taxes.
The Chancellor vowed to stick to her fiscal rules on day-to-day spending and reducing the UK’s debt.
However, economists are warning that the public finances are in such a dismal state that her economic cushion, or fiscal headroom, is now down from just under £10 billion to about £2 billion.
They believe she may have to announce scaling back her public spending plans or more tax hikes in the Spring Statement or the Budget in the autumn.
Speaking at the World Economic Forum in Davos, Switzerland, Ms Reeves said: “We’ve asked the independent Office of Budget Responsibility to do a forecast that will be published on March 26 and at that point, I’ll be setting out any changes that are necessary.”
But she added: “I don’t think we should jump the gun. (There’s) another two months before the OBR produce their forecast.”
The Government has ruled out a major new wave of tax rises, with the expectation at Westminster that she is more likely to reduce spending with Whitehall departments already under intense pressure to find savings.
Earlier this month, a sharp sell-off in British government bonds, driven to a large degree by shifts in US interest rate expectations ahead of Donald Trump’s return to the White House, and the fall in the value of the Pound, forced Ms Reeves to stress she would act to meet her fiscal rules if needed as she sought to reassure the markets
Market borrowing costs have fallen back in the last week and as of Thursday, British gilts were the third best-performing bonds among the Group of Seven countries this year.
“Just looking at what’s happened year to date, we’re in line with our peers to just look at bond yields,” the Chancellor stressed.
On the spike in UK yields earlier in the month, Ms Reeves said: “It’s not a UK phenomenon. It’s not a targeting of the UK.”
It has made getting healthy economic growth its No1 priority.
But Ms Reeves’ autumn Budget was criticised for a £25 billion hike in National Insurance contributions by employers which bosses and the Tories say is a “jobs tax” hitting the economy.
She has defended the Budget, which included £40 billion of tax rises and some £30 billion more borrowing, to inject £70 billion into the UK’s ailing public services, particularly the NHS.
