UK politics live: Reeves warned more cuts would be ‘political suicide’ as pressure builds over market turmoil

Rachel Reeves will move to reassure turbulent financial markets amid high Government borrowing costs as she faces a grilling from MPs on Tuesday.

The chancellor will answer questions in the Commons for the first time since her return from a trip to China criticised by political opponents for coinciding with a week of volatility for the pound and soaring yields on UK bonds.

Former Labour shadow chancellor John McDonnell has suggested that the current economic pressure will pass “fairly quickly” in the wake of Donald Trump’s inauguration and the upcoming German elections.

Describing the current market turbulence as a “crisis”, he told BBC Radio 4’s Today programme: “But I actually do think this will shift fairly quickly with the election of Trump and Trump coming into power, and then remember we’ve got the German elections coming up as well, and I think the focus might well then be on Germany and Europe overall.”

Pressed on whether he meant the chancellor must “hold her nerve”, Mr McDonnell his advice would be: “I think the scene was set to a certain extent before the election when we didn’t really have a thorough and open debate about the state of the economy and the options that we had available to us.

“I wouldn’t have ruled out the increases in income tax and wealth taxes on the wealthiest in our society the way it was, and I wouldn’t have ruled out increasing corporation tax.

“So we sort of boxed ourselves in to a certain extent.”

If this week’s update to the consumer prices index shows inflation is up by more than 3 per cent, it’s all over for Rachel Reeves, predicts our chief business commentator James Moore.

He writes: Could Wednesday’s inflation data be the end of the chancellor? If that sounds like hyperbole, let’s work it through.

“We are in the midst of a very real economic crisis, and the next update of the Consumer Prices Index (CPI) will have a very real bearing on that.

“It could be the most consequential release since inflation peaked at a shattering 11.1 per cent in October 2022.”

Chancellor Rachel Reeves has been warned that spending cuts would amount to “political suicide” and risk turning an economic “crisis into a recession”.

As the chancellor lays the ground for spending cuts in order to avoid breaking her fiscal rules after the rising cost of borrowing eviscerated the headroom left in her Budget, former Labour shadow chancellor John McDonnell told BBC Radio 4’s Today programme: “There is obviously a problem.

“There’s turbulence in the international markets and we’ve just got to see this through. The way you do that is – you don’t turn to cuts, certainly, because not only will that, I think, be politically suicidal, it would undermine the political support upon which Labour got elected.

“But in addition to that you would be taking demand out of the economy, and you would be looking at in doing that turning a crisis into a recession.

“So I think you just have to see through the turbulence that’s in the markets and, in this instance, I think you need to look to the Bank of England to intervene if necessary.”

Mr McDonnell was among seven MPs to have the Labour whip removed in July after rebelling against Sir Keir Starmer over the two-child benefit cap.

Chancellor Rachel Reeves is set to make a statement in the Commons, as she returns from her trip to China to face a wave of growing economic unease.

As speculation swirled on Monday over the chancellor’s future in No 11, the Liberal Democrats urged Ms Reeves to hold an emergency meeting with banks to reassure mortgage holders.

The party’s Treasury spokesperson, Daisy Cooper MP, warned that the October budget “has not worked” and said that “many will be worried”.

“Rachel Reeves can no longer sit on her hands as this turmoil threatens to have real consequences for millions of homeowners,” she added.

Downing Street has insisted that Rachel Reeves will be the chancellor “for the whole of this parliament” as speculation mounted that Sir Keir Starmer may sack her.

The vote of confidence came on Monday afternoon after Sir Keir had appeared reluctant to back the beleaguered Ms Reeves, amid mounting pressure on Ms Reeves as the value of the pound fell and government borrowing costs remained high.

He told journalists that she has his full confidence and is doing a fantastic job, but avoided the question the first time it was asked and then dodged questioning over whether his chancellor will still be in post at the next election.

Millie Cooke and David Maddox have more details: