Rachel Reeves ‘will have to cut spending or raise taxes to balance books’ after Budget sparked economic slowdown and borrowing costs rise

Rachel Reeves stands for the country to hit with more tax increases or swinging cuts on government spending because of the state of the economy, experts warned today.

The Chancellor is stuck due to slow growth and high loan costs that have let its financial head space evaporate, economists said.

This leaves her with few options when she makes her spring statement in March.

The Chancellor has already done it told various whitehall departments to prepare for their budgets that are frozen as they try Squeeze expenses by unprotected departments.

The treasury has reportedly asked them to model 'flat cash' spending plans, so that their budgets are frozen in cash.

But it will be tax increases that Labor MPs will undo the most, whereby the party in the polls will falter after a start of the government characterized by a Moribund economy.

Allan Monks, Chief UK Economist at JP Morgan, said The Times: 'The fiscal headroom of the Chancellor seems to evaporate.

'The costs of borrowing the government are considerably higher than last year, while growth remains anemic.

“It means that Reeves is confronted to have to control or increase expenses that are both politically challenging.”

The Chancellor is stuck due to slow growth and high loan costs that have let its financial head space evaporate, economists said.

Shadow Chancellor Mel Stride said that the problems of Mrs. Reeves were 'completely inflicted himself', and added: ''[She’s] Left with hard choices because the tax headroom is expected to have evaporated. 'Tough for her. Misery for millions. '

The Office for National Statistics (us) said that the net lenses of the public sector in December was £ 17.8 billion – the highest level for four years.

Borrowing was £ 10.1 billion higher than the same month last year and more than the £ 14.2 billion expected by most economists.

The told us that borrowing was driven higher by spending on public services and benefits, as well as increasing payments of debts, with an increase in tax receipts that were also compensated by the relocation of the previous government to reduce national insurance.

Borrowing in the financial year so far is £ 129.9 billion, £ 8.9 billion more than the same period a year earlier and a record outside the mammoth loans that was seen at the peak of the pandemic in 2020.

Year-to-date borrowing is also around £ 4 billion more than the £ 125.9 billion prediction by the independent tax watchdog of Great Britain, the Office for Budget Responsibility (OBR).

After the volatility on the British government bond market, it comes at the start of the year, as a result of which the loan costs of the public sector rise and have led to fears that Mrs. Reeves is on his way to miss her tax rules. The price of bonds has since returned to their original level.

Departments are currently offering funds from 2026 to 2029 as part of a large expenditure review in June.

Health, education and defense budgets are protected, but other departments are confronted with estimated £ 9 billion real terms cuts in daily expenditure, according to the Institute for Fiscal Studies.

A senior official in an unprotected department told Bloomberg that the treasury had asked them to model 'flat cash' plans – which suggests that there would be major cuts, once adapted for inflation.

Shadow Chancellor Mel Stride said that the problems of Mrs. Reeves were 'completely inflicted himself', and added: ''[She’s] Left with hard choices because the tax headroom is expected to have evaporated.

'Tough for her. Misery for millions. '