It has been a bruising first week back in Westminster. Resignations, reshuffles, and rattled markets set a turbulent tone for the government’s return, and all eyes are now on the red Budget box that Chancellor Rachel Reeves will lift outside No. 11 Downing Street on November 26.
This will be Reeves’ second Budget, and despite political drama swirling around her colleagues, her own position appears secure. In Birmingham to announce the date, she brushed aside speculation while standing on a housebuilding site, hard hat and trowel in hand. “We need you to get qualified and get more flats and houses up,” she told two apprentices, her masonry skills less convincing than her message.
The chancellor spent the summer on the road listening to business and briefly recharging on the Cornish coast. But global bond markets were restless. Yields on 30-year gilts, the government’s long-term borrowing cost, climbed to highs not seen since the early Blair years, sparking whispers of a looming £50bn black hole and even IMF loans. Reeves dismissed such talk as alarmist. “Serious economists are not talking about the IMF,” she said, insisting the swings reflected global trends rather than a crisis of confidence in the UK.
By midweek, her case was bolstered. Bond yields fell sharply after weak US jobs data, easing pressure on Britain. Bank of England Governor Andrew Bailey also downplayed concerns, noting long-term debt is only a sliver of total borrowing and demand for gilts remained strong. The message was clear: this was not a repeat of the 2022 mini-Budget meltdown.
Still, the warning signs are there. High inflation and questions over the government’s grip after summer U-turns have left markets twitchy. Reeves knows any misstep could be punished. Her team is preparing to argue that extra borrowing is not the answer. Instead, any fiscal gap identified by the Office for Budget Responsibility will need to be filled by tax rises or spending restraint.
Here lies the crunch. The OBR’s judgment on the UK’s long-term productivity prospects could define the size of the Budget squeeze. Treasury insiders are pressing for forecasts that take into account the government’s reforms, particularly around planning. Reeves has already hinted that forecasters should stick to their role rather than offering running commentary.
Speculation is mounting about where the axe might fall or revenues be raised. Bank shares dipped on rumours of new windfall taxes, fuelled by a think tank report Reeves says she has never even read. Departmental budgets are already locked in, so welfare spending looks the most likely target for restraint. Reeves did not rule this out, though she spoke of “more to do” in reforms to get people back into work.
For all the noise, Reeves still hopes to use this Budget to push pro-growth reforms to the tax system. But the scale of her ambition will depend on the OBR’s spreadsheets, market stability, and the political appetite for cuts or tax hikes.
Much can change before November 26. But one thing is certain: whatever goes into the red box will define both the chancellor’s credibility and the government’s standing with restless markets.
