Rachel Reeves will be back at her desk in the Treasury on Monday after her trade mission to China as markets reopen after last week’s bruising bond selloff and ahead of some key economic data on inflation and growth.
Officials will be monitoring closely moves in the price of government bonds, or gilts, after they were sold off sharply last week, pushing the 30-year yield – effectively the interest rate – to its highest level since 1998.
City analysts said much of the shift related to changing market expectations about inflation and interest rates in the US ahead of Donald Trump’s inauguration, but there was also some evidence of concerns about the outlook for the UK.
If the selloff is sustained, it could force the chancellor to make adjustments to her tax and spending plans or risk breaking her fiscal rules.
Fresh evidence of whether UK policymakers are struggling to see off inflation – one of the fears pushing down bond prices – will come on Wednesday, when the consumer price index data for December is released. Headline annual inflation rose to 2.6% in November, the highest level in eight months, from 2.3% in October.
Investors will also be watching the release of GDP data for November on Thursday to see whether fears of flatlining growth in the second half of 2024 have materialised.
The Conservatives attacked Reeves for pressing ahead with her two-day visit to Beijing and Shanghai amid turmoil on the financial markets.
The shadow chancellor, Mel Stride, told the BBC’s Sunday with Laura Kuenssberg: “The chancellor should be here at her station, reassuring markets and trying to get some sense that this government gets the depth of the problem and it has some clear plans.”
But the CBI’s director general, Rain Newton-Smith, who has previously been critical of Reeves’s tax policy, said that cancelling the trip would have been “completely the wrong move”.
“I think it’s really important that we engage with the the world’s second largest economy,” she said. “One of the things I think that this government have got right is the way that they have shown willingness to engage with China, willingness to engage with the US and with Europe, and to really do some of the important hard yards on diplomatic negotiations.”
Reeves is expected to give a speech at the end of this month to emphasise her plans for kickstarting economic recovery.
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The CBI is among the business groups that have been critical of the chancellor’s £25bn increase in employer national insurance contributions (NICS), which comes into force in April, alongside an increase in the national living wage.
Newton-Smith urged the government to be cautious about implementing its plans for boosting workers’ rights, given that employers’ tax and wage bills are already going to rise.
“We’re at the stage where you know the government needs to be really mindful of any increase in the overall cost of hiring and make sure that any reforms don’t make it harder for businesses to take a risk on people,” she said.
