Is Britain's future burning as bright as Reeves thinks?

Preparing for her appearance at the World Economic Forum in Davos in a couple of weeks, the chancellor declares herself confident that Britain’s economic future is “burning bright”: “I am on a mission to win round the world’s investors.”

- SEAN O'GRADY

Fair enough, but even Rachel Reeves herself might concede that 2025 is going to be another tough year for the public finances, and that investor confidence is proving a little bit brittle. The interest rates demanded by lenders to the government have been edging up recently, and have been setting unwelcome records.

Economists warn that Reeves is in danger of breaking her own “iron-clad” fiscal rules. To avert that, she may need to raise taxes again, cut public spending, or both. The “tough choices” that the government said would have to be taken after the general election are far from over...

How bad is it?

Well, the rates on very-long-dated government bonds – the principal repayable in 30 years – are at their highest since 1998, now sitting at around 5.35 per cent. These are largely used by pension funds to manage their future liabilities, and are a significant part of the market. More relevant for the home loan market is the 10-year gilt rate. This is now at its highest since October 2008, about to reach 4.8 per cent.