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Rachel Reeves has vowed to act if her financial plans are derailed by turmoil in the government bond market, as she announced a deal with China aimed at boosting Britain's sluggish economy.
The British Chancellor, speaking in Beijing on Saturday, insisted she would stick to her financial rules, which has since come under pressure. UK 10-year borrowing costs Last week, it rose to the highest level since the global financial crisis.
“Those fiscal rules that I set in the budget in October are non-negotiable and we will take measures to ensure that we adhere to those fiscal rules,” she told reporters.
Reeves has indicated that spending cuts may be needed if £9bn of headroom in its fiscal base – that day-to-day spending is covered by tax receipts – is wiped out by higher borrowing costs.
The tipping point will come on March 26 when the Office for Budget Responsibility publishes new forecasts. Reeves has indicated she will not impose taxes at that point, a step normally reserved for the budget.
“I've only committed to having one budget a year, and that will be in the fall,” she said.
The UK Chancellor said “re-engaging with China” would create up to £1 billion worth of value to the UK economy as she defended her budget plans.
She met with her counterpart, Deputy Prime Minister He Leveng, to reach an agreement that includes an agreement to expand financial access for British companies and lift trade barriers on British agricultural exports to China.
“China has opened its doors, and will only open more widely to give the UK and other countries more development opportunities,” he said.
“Growth is mission number one for this Labor government,” Reeves said. “It is to deliver growth that I am in China this weekend.”
Labor is seeking to improve relations with China after a turbulent few years under the Conservative government. Bilateral relations improved after Prime Minister Keir Starmer and President Xi Jinping met on the sidelines of the G20 summit in Brazil in November.
Reeves' trip was overshadowed by a sell-off in bond markets this week, pushing British borrowing costs to their highest level since the 2008 financial crisis.
Investors are increasingly concerned about government debt, the threat of stagflation and price pressures. The Conservatives and Liberal Democrats said she should have canceled her trip to Beijing.
The positive shift in the relationship with China contrasts with the tense relations with the conservatives. Kerry Brown, director of the Lau China Institute at King's College, said that towards the end of the semester, London and Beijing were “barely speaking”.
Beijing was angered when former Prime Minister Rishi Sunak described China as the “biggest state-based threat” to the UK's economic security. Sunak highlighted alleged state-sponsored cybersecurity attacks and criticized Chinese authoritarianism at home and assertiveness abroad.
“Labor is trying to return to the default British position on China – a relationship that lacks warmth or great closeness, but is practical and balanced,” Brown said.
Mark Tucker, chairman of HSBC Bank, who co-chaired the summit, said the two sides are “working to find ways to achieve and encourage cross-border investment in renewable energy generation, storage and new energy transmission solutions where we have a lot to learn from each other.” “.
Several leading Chinese renewable energy companies and electric vehicle suppliers are preparing to invest in the UK, waiting for geopolitical relations to improve before moving forward, according to people familiar with the matter.
Reeves said reforms to UK listing rules will make it easier for Chinese companies to list in London. The City of London has been courting foreign companies to list on the London Stock Exchange after the departure of companies that take their listings abroad or go private.
The agreement was short on detail on how it would deliver £1bn growth for the UK. The two sides agreed that China will issue its first overseas sovereign green bonds in London this year as the capital positions itself as a hub for green finance. In 2016, China issued its first sovereign bonds outside China in London in the “golden age” of UK-China relations during David Cameron’s prime ministership.
Fast fashion company Shein has filed confidential paperwork for a London listing after being rejected by US regulators. It is awaiting approval from the British and Chinese authorities before embarking on an initial public offering with a planned market value of 50 billion pounds.
The delegation included Andrew Bailey, Governor of the Bank of England, Nikhil Rathi, CEO of the Financial Conduct Authority, Richard Oldfield, CEO of Schroders, and Jose Viñals, Chairman of Standard Chartered Bank.
Reeves' trip comes as Parliament awaits the outcome of Labour's UK-China review, which will review the state of bilateral relations and is expected to make recommendations on how to deal with China.
Sam Hogg, an expert at the Oxford China Policy Lab, said the audit was “likely to be a tick-box exercise.”
