Intervention or inaction The options on the table for economy

There are a range of measures, of varying severity, the Treasury and the Bank of England could still take, depending on how market conditions unfold.

- Richard Partington, Julia Kollewe

Do nothing

Rachel Reeves could yet catch a lucky break. Some City analysts believe financial markets have overreacted to the challenging economic and fiscal outlook. Donald Trump's bite may prove less aggressive than his bark.

The Office for Budget Responsibility (OBR) has yet to capture the financial market data used in its forecasts and will do so closer to 26 March - leaving time for conditions to subside.

Financial markets are pricing in two quarter-point interest rate cuts from the Bank of England this year. However, many analysts expect a weaker economic outlook could lead Threadneedle Street to cut borrowing costs four times in 2025.

The situation could also become more challenging after Trump's inauguration on 20 January, should he announce sweeping import tariffs, which could in turn lead to surging inflation.

Spending cuts

The Treasury has signalled that spending cuts would be most likely to ensure it does not break its fiscal rules. However, that raises challenges for Labour, having promised no return to austerity, and to fix public services.