Reeves’ Budget borrowing plans ‘threaten UK stability’

UK Chancellor Rachel Reeves’ Autumn Budget plan to rewrite fiscal rules and borrow more could jeopardise the stability of the country’s public finances, warned ratings agency Moody’s on Friday.

In its first assessment of the Labour government’s Budget, Moody’s said that Reeves’ approach leaves little flexibility to manage economic shocks without breaching her newly introduced fiscal rules.

“In our view, the increase in borrowing, which is in part supported by a new measure of debt under the fiscal framework, will pose an additional challenge for what are already difficult fiscal consolidation prospects,” Moody’s said.

On Wednesday, the Budget proposed over £40bn in tax hikes while increasing government borrowing to finance more day-to-day spending and investments, triggering a sell off in gilts.

On Friday morning, the 10-year yield edged up 0.04 percentage points to 4.49 per cent, just shy of Thursday’s 4.53 per cent high.

Reeves defends Budget after Moody’s warning

Reeves defended the Budget in a Bloomberg interview, stressing that fiscal stability remains her “number one commitment.”

In a statement on Friday, the Chancellor said she had set out a “clear economic plan, with robust fiscal rules, that gets debt falling, balances the current budget within three years, while responsibly delivering the investment this country needs to support growth”.

However, Moody’s warned that economic growth is likely to remain weak, predicting only 1.7 per cent growth from 2025 to 2027.

Frequent fiscal rule changes have also weakened the UK’s policy credibility, Moody’s added, although the new tighter three year timeline to meet fiscal targets may restore some confidence.