The Chancellor has no way out. She’s widened the UK’s fiscal black hole to as much as £50billion, with no way of filling it. She can’t cut spending because the Labour left won’t let her. She can’t loosen her fiscal rules, having declared them “non-negotiable”.
Starmer daren’t sack her, because that would panic bond markets even further and send borrowing costs through the roof. Which leaves only one option: hike taxes again. And that will kill what little growth the economy has left.
Reeves has already been accused of driving Britain into a “doom loop”. Yes, she inherited a poor hand, but the economy was beginning to stabilise when she took charge. Within a year, she’s thrown it back into chaos.
Her first Budget jacked up taxes by £40billion, crushing growth by destroying jobs and businesses, while boosting spending by another £30billion. More giveaways are planned.
Britain is on course to borrow £150billion over the next 12 months. More than £100billion of that will go on servicing our £3trillion national debt. That’s money straight down the drain.
Now the real horror is dawning. Expert after expert is warning Britain faces a currency crisis, as Reeves’s policies destroys the credibility of the pound.
So far sterling has held reasonably steady. But economists warn the dam is about to burst under the pressure of Labour’s tax-and-spend binge.
I regularly read PoundSterlingLive.com, a low-key financial site quietly devoted to currency markets. It wasn’t quiet on Friday, when it splashed the headline: “Pound Sterling Traders Warned of 1976-Style Crisis as UK Faces Stagflation.”
That’s the type of headline I might write, then dismiss as too extreme. And it terrifies me.
The site quoted Andrew Sentance, a former member of the Bank of England’s monetary policy committee, who said: “Rachel Reeves is on course to deliver a Healey 1976-style crisis in late 2025 or ‘26.”
Sentence squarely blames her for massively boosting public spending, borrowing and taxes, and fuelling every type of inflation.
The comparison is chilling. Denis Healey was the Labour Chancellor who presided over the sterling crash of 1976, when Britain was forced to go “cap in hand” to the International Monetary Fund to avoid going bust.
Like Reeves today, Healey spent like a drunken sailor on shore leave until the markets finally called time. It’s what Labour Chancellors do. Remember Gordon Brown?
With inflation back up to 3.8% in July and services inflation at 5%, Sentance warned the UK could soon face an economic crash “driven by fiscal overreach and political divisions”. Other analysts agree. Justin McQueen of Reuters warned of “stagflation”, that dreaded 1970s mix of stagnation and soaring prices. Swiss bank UBS is also using the word, warning that “the UK is already in a stagflationary situation”.
These are not political critics looking to score points, but respected economists and currency specialists.
That makes the warnings all the more alarming. And it gets worse.
The IMF’s rescue in 1976 forced Healey into savage spending cuts. That enraged militant unions, triggering the infamous Winter of Discontent and driving Labour from power for a generation. The echoes today are unmistakable.
Reeves has already tried to buy off the unions with £10billion of backdated pay rises. One year on, they’re back for more.
The RMT has announced a week of Tube strikes, while junior doctors, nurses and GPs may walk out over winter.
Council workers are already on strike in Birmingham, leaving rubbish piling in the streets. Experts warn Britain now faces an Autumn of Discontent. Add in the immigration rows dividing the country, and the political tension is ratcheting higher.
Reeves has boxed herself into the same corner as Healey. The IMF waits in the wings. The only question is whether she will be the one forced to swallow the medicine — or whether her unlucky successor will have to ram it down.
