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Rachel Reeves has vowed to act if her fiscal plans are derailed by turmoil in the gilt market after she announced a deal with China aimed at boosting Britain’s stagnant economy.
The UK chancellor, speaking in Beijing on Saturday, insisted she would meet her fiscal rules which have come under pressure after UK 10-year borrowing costs last week rose to their highest level from the global financial crisis.
“Those fiscal rules that I put in the budget in October are non-negotiable and we will take action to ensure that we meet those fiscal rules,” she told reporters.
Reeves has hinted that spending cuts may be needed if the £9 billion of headroom in her fiscal rule – that day-to-day spending is covered by tax bills – is wiped out by rising borrowing costs.
The tipping point will come on March 26 when the Office for Budget Responsibility releases the new projections. Reeves has signaled she would not impose taxes at that point — a move normally reserved for a budget.
She said: “I vowed to have only one budget a year and that budget will be in the fall.”
The UK Chancellor said “re-engaging with China” would deliver up to £1 billion in value to the UK economy while defending her budget plans.
She met her counterpart Deputy Prime Minister He Lifeng to hammer out a deal that included an agreement to expand access to finance for UK firms and remove trade barriers to UK agricultural exports to China.
He said: “China has opened its doors and will open wider to give the UK and other countries more development opportunities.”
Reeves said: “Growth is the number one mission of this Labor government. It is to achieve growth that I am in China this weekend.”
Labor has been on a charm offensive to improve ties with China after a turbulent past few years under the Conservative government. Bilateral relations have thawed since Prime Minister Keir Starmer and President Xi Jinping met on the sidelines of the G20 Summit in Brazil in November.
Reeves’ trip has been overshadowed by a selloff in bond markets this week that pushed British borrowing costs to their highest level since the 2008 financial crash.
Investors have grown increasingly concerned about government debt, the threat of stagflation and price pressures. The Conservatives and Liberal Democrats said she should have canceled her trip to Beijing.
The positive change in relations with China contrasts with strained ties with the conservatives. By the end of the term, London and Beijing were “barely speaking”, said Kerry Brown, Director of the Lau China Institute at King’s College.
Beijing was shocked when former prime minister Rishi Sunak called China the “biggest state-based threat” to the UK’s economic security. Sunak highlighted alleged state-sponsored cyber security attacks and criticized Chinese authoritarianism at home and assertiveness overseas.
“Labour is trying to return to Britain’s default position towards China – a relationship without great warmth or closeness, but pragmatic and balanced,” Brown said.
HSBC chairman Mark Tucker, who co-chaired the summit, said the two sides “are working on ways to achieve and encourage cross-border investment in renewable energy generation and storage and new energy transport solutions where we have so much to offer. learned from each other.
Several major Chinese renewable energy companies and electric vehicle suppliers are preparing to invest in the UK, waiting for an improvement in geopolitical ties before proceeding, according to people familiar with the matter.
Reeves said reforms to UK listing rules would make it easier for Chinese companies to list in London. The City of London has required foreign companies to list on the London Stock Exchange, following an exodus of companies moving their listings overseas or going private.
The deal was scant on details of how it would achieve a £1 billion boost for the UK. The two sides agreed for China to issue its first overseas sovereign green bonds in London this year as the capital positions itself as a hub for green finance. In 2016, China issued its first sovereign bond outside of China in London in the “Golden Age” of UK-China relations during David Cameron’s presidency.
Fast fashion company Shein has filed confidential documents to list in London after being rejected by US regulators. It is awaiting approval from UK and Chinese authorities before proceeding with an initial public offering with a planned market valuation of £50 billion.
The delegation included Andrew Bailey, governor of the Bank of England, Nikhil Rathi, chief executive of the Financial Conduct Authority, Schroders chief executive Richard Oldfield and José Viñals, chairman of Standard Chartered.
Reeves’ trip comes as parliament awaits the outcome of Labour’s UK-China audit, which will examine the state of bilateral relations and is expected to develop recommendations on how to deal with China.
Sam Hogg, an expert at the Oxford China Policy Lab, said the audit “is likely to be a box office exercise”.
