Chancellor Rachel Reeves may implement further public service cuts to meet fiscal rules, with borrowing costs at a 27-year high

Rachel Reeves is preparing to impose even harsher cuts to public services, officials have revealed, as the UK government grapples with rising borrowing costs and a struggling pound. Following a turbulent week for the economy, in which UK borrowing costs soared to their highest levels since 1998, Reeves is considering reducing departmental spending more than previously planned.

Having ruled out tax increases and further borrowing, the Chancellor is reportedly aiming to meet her strict fiscal rules by announcing deeper cuts in an emergency statement this spring. The government’s financial position was severely tested after a dramatic sell-off in government bonds, causing long-term borrowing costs to escalate.

Despite facing political pressure from both the Conservatives and Liberal Democrats, who have called on Reeves to cancel her trip to China, the Chancellor pressed on with her mission to strengthen economic ties with Beijing. While some economists warned that the rise in borrowing costs could jeopardise the £10bn fiscal buffer Reeves had set aside, Treasury sources insisted the Chancellor would not back down on her fiscal commitments.

Senior figures in Labour have hinted that if the Office for Budget Responsibility (OBR) downgrades the government’s economic outlook in March, Reeves will take immediate action to correct any breaches of fiscal rules. However, there are no plans to increase taxes, following the £40bn tax rise announced in the previous budget. Instead, sources confirm that any fiscal gap will be closed through spending reductions.

Reeves had already planned cuts to unprotected departments, but deeper cuts could be announced earlier than expected. Meanwhile, the government is under intense pressure to stabilise the markets, with the yield on 10-year UK government bonds fluctuating wildly, contributing to a fall in the pound.

As Reeves works to balance the books, the UK’s fiscal outlook remains precarious, with many questioning whether the government can meet its targets without exacerbating public sector strain.