Reeves considers deeper cuts in spending

Rachel Reeves is considering imposing steeper cuts to public services to repair the government's finances after a bruising week in which investors drove up the cost of UK borrowing and pushed the pound to a 14-month low.

- Kiran Stacey, Richard Partington, Jessica Elgot

Government officials have told the Guardian the chancellor is prepared to reduce departmental spending even more than planned, having ruled out increases to borrowing or taxes. Any measures to avoid breaking Reeves's fiscal rules could be announced at an emergency statement in the spring.

The prospect of a fresh spending squeeze comes as Britain's financial position is being rattled by a dramatic sell-off in the global market for government debt, fuelling a rise in the UK's long-term borrowing costs to the highest level since 1998.

On another day of drama in the markets after a difficult start to the year for Labour, Darren Jones, chief secretary to the Treasury, sought to soothe investors' jitters by insisting the markets for UK government bonds, known as gilts, remained "orderly", while confirming that the government would stick to its fiscal commitments.

"It is normal for the price of yields and gilts to vary when there are wider movements in global financial markets including in response to economic data," he told MPs yesterday.

The Conservatives accused the government of saddling the economy with higher taxes and borrowing, and joined forces with the Liberal Democrats to call on Reeves to cancel a trip to China, which she nevertheless embarked on last night.