Rachel Reeves (Image: Getty)
Chancellor stands accused of having “fled to China” as crisis grips the economy while firms warn of lower wages and higher prices at the checkout.
meant the cost of Government borrowing soared and stoked fears of massive spending cuts, but Ms Reeves rejected calls to cancel a trade trip to Beijing.
Shadow Chancellor Mel Stride said: “Rachel Reeves is missing in action. The Chancellor should now cancel her travel and focus on this country instead.”
He warned: “The Chancellor is squandering the endeavours of millions of hard working people up and down our country who are now having to pay the price for yet another socialist government taxing and spending their way into trouble.”
The Tory shadow Business Secretary went further, Photoshopping Ms Reeves as the children’s character ‘Where’s Wally’ on social media and demanding to know where she is.
A damning new report by the Bank of England exposed the impact of the Chancellor’s decision to increase National Insurance for employers, with a majority of firms set to increase prices and employ fewer workers.
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Four in ten businesses also said they expect to pay lower wages as a result of the increase, part of a £36 billion package of tax rises. The Bank’s findings were based on a survey of Chief Financial Officers in businesses nationwide.
Retailers meanwhile said the price of food at the checkout would soar 4.5 percent in the second half of this year thanks to the National Insurance rise, increases in the minimum wage and “green” taxes on packaging.
Helen Dickinson, Chief Executive of the British Retail Consortium, said: “There is little hope of prices going anywhere but up.”
Fears about inflation and stalled economic growth have contributed to an increase in yields on government bonds, also known as gilts, which are at their highest rate since 2008. This means it costs the Government more to borrow money, putting the Chancellor under pressure to cut spending to balance the books.
The Treasury has insisted Ms Reeves will not repeat the tax hikes in her first Budget, suggesting future pain will be felt with public spending cuts and sparking accusations she is planning another round of austerity.
attempted to summon Ms Reeves to Parliament to explain how she would restore calm, but her Deputy Darren Jones, Chief Secretary to the Treasury appeared before MPs instead.
He said: “We need to improve our trading relationship with countries around the world. That’s why the Chancellor is going to China today.”
Ms Reeves is accompanied on the trade trip by Bank of England Governor Andrew Bailey.
But Reform MP said Ms Reeves should “return from her ridiculous trip to China and reverse course, cut daft spending, cut wasteful regulations in order that we can create some growth.” He insisted: “We are heading towards, be under no illusion, a financial crisis.”
There are fears Ms Reeves will impose brutal savings on Government departments as part of a “line-by-line” review of spending to be completed in June. Mr Jones has already written to Cabinet colleagues warning that “where spending is not contributing to a priority, it should be stopped”.
And he refused to rule out further cuts, telling the House of Commons: “Public services will have to live within their means.”
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The Chancellor will finalise her plans after watchdog the Office for Budget Responsibility publishes a report on the state of the public finances on March 26.
Isabel Stockton, Senior Research Economist at think tank the Institute for Fiscal Studies, said the Chancellor “should not be surprised” if she needed to increase taxes or cut spending to meet her targets.
Economic turmoil continued as the pound plummeted to its lowest level against the US dollar since 2023 and Labour’s manifesto pledge to make the UK the fastest-growing economy in the G7 was in doubt after the Recruitment and Employment Confederation warned that firms are avoiding taking on new staff, with the number of vacancies falling at the fastest level for four years.
Foreign Secretary David Lammy defended Rachel Reeves’s stewardship of the economy, telling reporters: “I’ve listened to much of the comment, and I think all of the commentators have recognised that not just in the UK, but also in the United States, there’s international volatility in relation to the gilts market.
“The central thing in the UK, particularly in relation to borrowing, is growth in our economy.”
Alpesh Paleja, Interim Deputy Chief Economist at employer’s group the CBI, said: “There’s no doubt that businesses are entering 2025 with a more pessimistic outlook. Our surveys show that firms expect to reduce both output and hiring over the coming months, and price growth expectations are getting firmer.”
Former Bank of England rate-setter Martin Weale warned that the last time Britain experienced the “toxic combination” of falling sterling and rising long-term was during the 1976 debt “nightmare”, which led to the humiliating IMF bailout of Jim Callaghan’s government.
Mr Weale explained: “So far we are not in that position but it must be one of the chancellor’s nightmares.”