"The negative space framing the chancellor's otherwise vacuous speech last week was the acknowledgment that taxes will rise, spending could be cut. Keeping the bond market on side is important. There are plenty of voices arguing the dangers are overplayed. But Reeves is right to say there is nothing progressive, nothing Labour about risking a bond-market reaction that would drive up borrowing costs."
"Doing so would send out the strongest message of budget discipline to the bond market far more than a manifesto-busting round of tax hikes. As debt market analysts at Barclays put it last month: Spending reform is now seen as a totemic issue by the market. That Keir Starmer's government foundered in its attempt to cut 5bn from welfare earlier this year was a red flag from the perspective of the gilt market, they said."
With under three weeks until the autumn budget, the chancellor will receive the OBR's assessment of tax and spending plans amid expectations of a fiscal gap up to £30bn. Gilt markets have recently rallied, lowering government borrowing costs, aided by falling US yields and the chancellor's emphasis on fiscal discipline. Keeping bond investors reassured matters because a market reaction could raise borrowing costs and harm growth, inflation, and living standards. Markets favour spending reform over large tax hikes as the strongest signal of budgetary credibility. Attempts to cut welfare earlier exposed vulnerability; the chancellor faces a difficult balancing act with no risk-free options.
Read at www.theguardian.com
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