It’s been a hellish week for the Chancellor. On Wednesday, she broke down in the Commons after Keir Starmer pointedly refused to say her job was safe. And for a moment, the UK finances were on the brink of collapse too.
As rumours spread that Reeves was toast, 30-year gilt yields surged to 5.5%. That topped the Liz Truss meltdown to hit 2008 financial crisis levels, as markets panicked about who would replace the Chancellor.
Reeves somehow survived, but when the PM paraded her about yesterday, she looked shellshocked. And now it’s going to get worse for her. US president Donald Trump will make sure of that.
Trump has just passed his flagship policy, what he calls “one big beautiful bill”, through Congress.
It extends massive tax cuts from his first term and adds fresh spending splurges worth a staggering $4.5trillion.
That’s roughly £3.3trillion, more than the value of the entire UK economy last year.
The US Congressional Budget Office reckons Trump’s latest spree will add trillions more to America’s $36trillion national debt over the next decade. One day, that debt bomb will explode.
This isn’t just America’s problem. It’s a missile aimed at our beleaguered Chancellor too.
The UK is already on shaky ground. Our national debt pile is now worth almost 100% of GDP, up from just 30% at the start of the Millennium. And it’s rising fast.
The interest alone cost taxpayers more than £100billion last year, around 8% of all public spending. Reeves’s fiscal headroom has evaporated. Rising interest rates on that debt pile are a big reason why.
This year she needs to raise another £300billion on the bond market, from issuing new gilts and rolling over expiring ones.
Now she’ll have to compete with a flood of US Treasury debt as Trump stuffs global markets with bonds.
When supply surges and demand falls, gilt yields rise. That makes it even more expensive for governments to borrow.
Which is disastrous news for Reeves, because the UK will be among the hardest hit. Markets know we’re in a mess. We borrow too much, grow too slowly and are dangerously reliant on international goodwill.
We already pay twice as much as Germany to borrow. That gap is only going to widen. Basically, we’re the new Greece.
Trump will get away with it for now because the US economy is booming. It just added 147,000 new jobs in a month. Reeves’s own Budget has wiped out 275,000.
We can’t run endless deficits because the bond vigilantes won’t allow it. Our finances are too fragile. Labour too dysfunctional. And they’re still scarred by “Calamity” Liz Truss.
Gilt yields have eased slightly to 5.35%, but they’ll soon climb again. Reeves has no room to borrow more, no mandate to cut spending, and no credibility left to squeeze taxpayers again, but that won’t stop her. She could hit us with another £40billion this autumn.
The doom loop has started. Reeves helped create this mess with her reckless tax raids and economic self-sabotage. But Trump’s $3trillion bomb may be what finally finishes her off.