Labor will step up its push for growth to avoid ‘outrageous’ tax hikes.

Open the editor’s digest for free

FT editor Rula Khalaf picks her favorite stories in this weekly newsletter.

The UK government is preparing new growth initiatives to avoid a “disgusting” tax hike after a punitive week on markets that could derail its policy agenda.

UK borrowing costs rose to a 16-year high on Friday, it closed. The worst week of the year The market for gilts after the sell-off dragged down the pound and reassured investors about the state of the government’s finances.

When Rachel Reeves returns from a trip to China on Monday, the chancellor plans to set out a convincing “growth narrative” including new economic policies, with a summit speech expected later this month, officials said.

Officials said the government was determined to avoid further tax increases in the £40bn package it unveiled in October, one of which it said was “absolutely disastrous”.

Instead, the government seeks growth and follows public spending A harmful increase in government borrowing costs.

Officials and ministers are likely to make cuts to the department’s spending plans in the upcoming spending review, which will take place on June 11, according to people familiar with the process.

As part of the development agenda, Labor plans to replace the “writing round” process in which different departments agree on joint policy-making.

“Departments will be asked if the policy will have a significant impact on growth, and if the answer is yes, we will – as a broad principle,” the Treasury official said.

At the same time, if the departments are pushing policies that “pull for growth” during the cost review process, they will be given a strong message that these “must be reconsidered”.

But the gilt market sale has exposed serious weaknesses in the party’s economic and public finance strategy, criticizing the government for failing to adequately build on negative changes in the October budget and for being slow to detail. Growth motivation.

Ben Navarro, UK economist at Citigroup, said: “Now they need to show they are serious about tackling the UK’s fiscal challenges on a large scale. “That means controlling structurally weak growth. But if you think growth alone can save you from this fiscal hole, you’re wrong. Some spending and tax adjustments are also needed.”

The Bank of England said the economy failed to grow in the final quarter of 2024, following a better-than-expected GDP reading late last year. Business surveys showed a lack of confidence following the tax hike in the October budget.

The 10-year gilt yield ended the week at 4.85 percent, up 0.25 percentage point from a week ago. Sterling fell to $1.219.In the year The weakest level against the dollar since November 2023. The domestically-focused FTSE 250 index fell 4 percent this week, its biggest drop since June 2023.

Reeves’ October budget, which included a sharp increase in borrowing rates, fell victim to a sharp sell-off in international bond markets amid renewed fears of inflation.

That sent government bond yields higher across the board as investors argued that central banks would be slow to cut interest rates. That has confounded investors’ concerns over the UK economy with the country’s 30-year borrowing costs rising to their highest levels this century.

“The more production increases, the worse the fiscal situation gets,” said Mark Dowding, chief investment officer of fixed income at RBC Blue Bay Asset Management.

Strong US jobs numbers On Friday, increasing pressure on the bond market prompted traders to cut interest rates from the Federal Reserve. The next key moment for gilts will be UK inflation next week.

An area where Reeves will focus on major reforms is developing new details for a new “planning and infrastructure bill” to accelerate development, which must be introduced in the House of Representatives in March.

A senior Labor MP said: “The government wants to bring in a plan for growth… and this is more important than ever for businesses, who expect higher national insurance, a new employment rights package and a higher minimum wage.”

Another Labor veteran said the recent election that saw Labor down to 24 per cent had left him “banging my head on the table”, although Starmer’s leadership was safe for at least another year. “If they start to look like they don’t have a coherent or compelling narrative to sell labor markets, then they’re doomed, right?”

Data visualization by Keith Fray