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Billionaire financier Lord Spencer said Ms Reeves had got herself into a “catastrophic mess” and should have abandoned her trip.

The former Tory party treasurer, said: “The situation is unlikely to sort itself out easily - she would have been very well advised to have cancelled her trip to China.”

Lord O’Neill, who served as Treasury minister under David Cameron and has previously advised the Labour Party, said the current panic was overblown, but urged the government to focus on growth.

Speaking to BBC Radio 4, he said: “If you boost growth, the revenues will grow and the underlying fiscal position will improve further. That is how I would currently think about it. But I do think it highlights, they have to be really, really serious about that, or come mid-summer, they are going to be in bigger problems, in my opinion. I wouldn’t be so hopeful.”

A toxic cocktail of higher government debt interest bills and an expected growth downgrade means the Chancellor is now on track to break her fiscal rules by as much as £4.6bn, bringing warnings that she will be forced into making an emergency Spring Budget to calm markets.

Ruth Gregory, of Capital Economics, said the rise in borrowing costs since the Budget alone means Ms Reeves will break her fiscal rules by nearly £1bn when the Office for Budget Responsibility (OBR) revises its analysis of the public finances in March.

On top of this she is also likely to lose a further £3.9bn in fiscal headroom – the margin by which she can meet her borrowing targets – because of expected downgrades in the OBR’s growth forecasts as Ms Reeves’s tax rises bite.

To continue meeting her fiscal rules, considered essential for keeping markets under control, Ms Reeves will have to choose between more tax rises or spending cuts.

Matt Amis, investment director at abrdn asset management, said: “We ultimately expect to see a Spring budget alongside the OBR forecasts, where she signals greater cuts to government spending.”

This would be a massive blow to the Chancellor’s credibility, after she made a manifesto pledge to hold only one fiscal event a year.

Yields on 30-year government bonds have soared since the Budget to hit the highest rate recorded since 1998, while yields on 10-year bonds have climbed to the highest seen since 2008.

The pound has slumped to the lowest level against the dollar since November 2023, prompting strategists at Citi investment bank to refer to the currency as the “Great British peso”.

Normally, higher borrowing costs strengthen a currency, meaning the fall in the pound is a clear sign that investors are losing faith in the Chancellor’s ability to keep borrowing and inflation under control following her Budget measures.

Markets calmed slightly on Thursday afternoon after closing for former president Jimmy Carter’s funeral but investors are bracing for another difficult day as closely-watched US jobs figures are released on Friday.

Mr Amis said: “If the numbers are to the high side above consensus and we see average hourly earnings go higher, then US Treasury yields will move higher and take UK gilt yields with them.”

UK inflation data, which will be released on Wednesday, will also trigger further market movements if inflation is higher than expected, Mr Amis said.

Ms Reeves failed to attend an urgent question in Parliament about the surge in Government borrowing costs on Thursday, sending her deputy Darren Jones in her place.

Mr Jones told the Commons on Thursday: “The Chancellor is going on her trip to China. It has been well documented for many weeks, and it is an important visit for trade and investment in the UK economy.”

The trip comes despite mounting security concerns about China and its campaign to influence British policy, which have become heightened after it emerged that an alleged Chinese spy had become a “close confidant” of Prince Andrew.

It is a clear departure from China policy under the last years of the previous Tory government, when former Prime Minister Rishi Sunak declared the so-called golden era of relations with China was “over”.

As Republican president-elect Donald Trump prepares to enter the White House this month, closer ties with China also risks destabilising Britain’s relationship with its closest ally. Mr Trump campaigned on a promise to impose tariffs of up to 60pc on Chinese goods, and his advisers have made clear that Britain will have to pick sides in global trade.

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06:12 PM GMT

Signing off...

Thanks for joining us on this live blog today.

You can follow our latest economics and business stories here , while our politics coverage is here .

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05:52 PM GMT

Inflation to rise after private school tax raid, say economists

Inflation will rise this year as a result of Rachel Reeves’s tax hikes, including on private schools.

Economists at Pantheon Macroeconomics pointed to cuts in the inflation rate stalling “as firms pass through payroll-tax hikes to prices”.

They said: “We think VAT on private schools, other tax changes, regulated prices and inflation-indexing ... will add to that underlying pressure, boosting CPI (consumer prices index) inflation to 3.2pc in April and 3.4pc in September.”

However, they expect last month’s CPI inflation figure, due on next week, to show CPI inflation was unchanged at 2.6pc year-over-year, 0.1 percentage point above the Bank of England’s projection.

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05:42 PM GMT

Reeves’s best option is to cut spending, suggest economists

Rachel Reeves is likely to be forced into cutting spending, economists have suggested.

Ruth Gregory and Hubert de Barochez of Capital Economics said: “If the recent market moves are sustained, we estimate that the resulting rise in the government’s debt interest payments puts the Chancellor on course to break her fiscal rule by £1.4bn...

“Simply letting borrowing surge and breaking the rules could be a recipe for more rises in gilt yields. And while we wouldn’t completely rule out tax rises, this could worsen the economy’s near-term prospects. We think she would probably choose to restrain spending, perhaps in 2028/29 and 2029/30.”

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05:35 PM GMT

Investors may have ‘just lost faith’ in UK economy, says M&G

Global investors may have lost faith in the UK economy, a fund manager at M&G Investments has said.

Eva Sun-Wai, a fund manager at M&G Investments, told Bloomberg Radio: “The worry is that investors have just lost faith in the UK as a place to put their assets.”

Ms Sun-Wai said the pound dropping while yields rise may be “a signal of capital flight”. Usually, higher yields would be expected to make the pound more attractive.

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04:55 PM GMT

Market turbulence could mean costlier mortgages, say wealth managers

The pressure on gilts could feed through to higher morthage costs and prices in the shops, wealth managers have warned.

Jason Hollands, managing director of wealth manager Evelyn Partners, said: “Markets have essentially been factoring in a combination of stickier inflation, a more modest pace of rate cuts than hoped for only months ago, and, importantly, appear to be taking a dim view of UK growth prospects.

“This all comes ahead of a year of anticipated significant new gilt issuance and is therefore clearly bad news for Rachel Reeves.”

He said the “big question” is whether the rise in borrowing costs is a temporary spike, “or proves to be more long lasting, resulting in a long-term shift in government borrowing costs. It is simply too early to know”.

An improvement in UK growth figures over the coming months could ease market concerns and see yields come back, he said, adding: “However, should the recent rise in bond yields turn out to be more than a flash in the pan, there are a number of potential personal finance implications.

“These include the prospect of the Chancellor needing to engage in further tax rises, an increase in mortgage rates and, for those retiring, a relatively bright spot could be improved annuity rates which provide retirees with a guaranteed income for life and which are heavily influenced by gilt yields.”

Lindsay James, investment strategist at Quilter Investors, suggested consumers may potentially see rising prices, with holidaymakers potentially affected by weakened sterling.

She said: “Theoretically, if yields were to continue to rise, which is by no means certain, then new loans taken out by corporates would be more expensive.

“This could be passed on to customers through higher pricing. However, a lot of companies raised money at lower rates and interest costs would not be affected until the point of refinancing.”

She added: “In the UK, weaker sterling will make foreign imports look a bit more expensive, potentially impacting some food and energy costs as well as meaning higher expenses for any US-bound holidaymakers.”

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04:37 PM GMT

Reeves needs to make tax and spending changes to maintain credibility, say economists

The Labour government needs announce changes to her financial plans in order to “ maintain fiscal credibility”, Capital Economics has said.

Paul Dales, chief UK economist at Capital Economics, said: “The leap in gilt yields to multi-decade highs is an extra headwind to an economy that had no momentum at the end of 2024.

“In order to maintain fiscal credibility, the Chancellor will have to announce ... lower government spending than currently planned and/or higher taxes.”

Analysts said concerns about inflation remaining high for longer than hoped is a major reason for the jump in bond yields, mirroring a situation in the United States.

In the UK, sentiment has been further hit by weaker-than-expected economic growth since Labour came to power in July.

“Today, the UK’s demons are back, driven by heightened fiscal concerns - evoking memories of Liz Truss,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

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04:27 PM GMT

Banking giant Citi points finger at Reeves’s ‘inflationary’ Budget

The pressure on gilts “can be traced back to the October 30 Budget”, according to Citi.

The US banking group said: “It may have been a slow burn, but with global yields now higher, gilts are suffering from the consequences of the front-loaded fiscal loosening that was seen as inflationary, therefore slowing Bank of England cuts while also leaving very little fiscal wiggle room.”

The UK 10-year bond yield rose as high as 4.925pc in early trading, the highest since 2008, after rising sharply yesterday. The yield later fell and was is roughly flat on the day at 4.802pc. It was 4.597pc on Friday.

Though euro zone bond yields have also climbed, they have largely escaped the sharp sell-off in UK and US markets.

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04:13 PM GMT

National Insurance hike means lower wages, says Bank of England official

British workers will have lower wages “in the long run” as a result of Rachel Reeves’s National Insurance hike, a top Bank of England official has said.

Sarah Breeden, a deputy governor at the Bank, told an audience at Edinburgh Business School this afternoon: “Businesses have many potential margins of adjustment to increased NICs. At one extreme, they might respond by passing the entire cost through into lower wages – indeed, this would be my assumption for where it ends up in the long run.

“At the other extreme, they might seek to protect wages and increase prices, especially in the short term.

“They might also respond by reducing employment or by eating into their profit margins.

“The reality will sit somewhere between these extremes and will depend on the specific circumstances that each business finds themselves in. Whether employers can pass on higher costs to consumer prices will depend on the overall demand environment in the economy.”

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04:06 PM GMT

FTSE 100 after boost from weaker pound

FTSE 100 reached a three-week high during trading, adding as much as 0.9pc. It is currently up by 0.7pc.

The index contains globally focused companies that benefit from a falling pound.

The mid-cap FTSE 250 is also up, by 0.2pc.

Chris Beauchamp, chief market analyst at online trading platform IG, said:

The turmoil in gilts and sterling has understandably caught everyone’s attention, but the FTSE 100 has managed another strong day today.

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04:00 PM GMT

Nightclubs warn Budget tax hikes could drive venues to ‘brink of closure’

The UK nightclub sector has warned that tax hikes are likely to drive more venues “to the brink of closure”.

Michael Kill, head of the Night Time Industries Association said that the uncertainty for the sector is more “more concerning than anything we saw during the pandemic.”

Concerns come after Labour’s autumn Budget introduced an increase in employers’ national insurance contributions from 13.8pc to 15pc, which is expected to raise £25bn for the Treasury.

Reduced business rates relief is also among fresh pressures imposed by the Budget, alongside an increase to the national minimum wage.

Mr Kill said: “The additional financial burden from the planned tax increases in April 2025 could drive many more businesses to the brink of closure.

“Operators are working on fine margins and many have exhausted all possible avenues to cut costs...

“This environment for many is unsustainable.”

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03:52 PM GMT

Investors should ‘rebalance’ their portfolios, urges broker

The turmoil in the bond markets means that investors should review their portfolios, a leading broker has suggested.

Hargreaves Lansdown said that “the level of UK debt and the gilt markets are now in the eye of the storm”.

But Hal Cook, senior investment analyst, said: “Don’t panic. Investment objectives should usually focus on the longer term, and shorter-term volatility is to be expected. However, it’s worth investors reviewing where they’re invested and whether the split between shares and bonds is still what they want, given their objectives.

“Rebalancing is a good investment habit to get into. It forces investors to sell things that have done well and buy those that haven’t. That can seem illogical on the face of it. But it’s rare for something that has performed strongly to continue to perform strongly, especially over the long term.

“You might think that yields could go higher, and you might want to try to time the peak in yields. That’s notoriously difficult and markets can move quickly, so it could backfire if yields suddenly reverse their current trend.”

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03:28 PM GMT

Hammond urges Reeves to ‘reassure Parliament’ as pound sinks

Former chancellor Philip Hammond urged Rachel Reeves to “reassure Parliament” amid the recent turmoil in bond markets but stopped short of suggesting she should cancel her trip to China.

Lord Hammond said the UK economy and business sentiment are “very fragile”, with the pound falling as much as 1pc today and long-term government borrowing costs hitting highs last seen in 1998.

He told the BBC’s World At One programme: “I’d be worried about the trend of what is happening.

“I think it’s right that we don’t get obsessed with single-day movements in the markets but it’s clear that on a medium term trajectory the markets are concerned about the sustainability of the fiscal position in the UK, and about the robustness of the UK economy.”

He added: “I do think she will need to reassure Parliament about what is going on when she gets back next week.”

In response to an urgent question in the Commons, Treasury minister Darren Jones said there was “no need for an emergency intervention” in financial markets.

Lord Hammond said: “I think we need a message from the Chancellor that she understands the concerns of business and that she is going to put business, investment and economic growth at the very front of her agenda.”

Thanks for following today’s live updates so far. Alex Singleton is taking over from here.

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02:57 PM GMT

Bond sell-off slows as US markets closed for Carter funeral

The sell-off in UK bonds has been handed a “short reprieve” this afternoon as US markets are closed today for the funeral of former president Jimmy Carter .

The 10-year UK gilt yield is now little changed on the day at 4.79pc, having earlier climbed as high as 4.92pc.

Kathleen Brooks, research director at XTB, said: “The halt to the UK bond sell off could be down to multiple factors.

“Some have wondered about official intervention; however, we think that this is unlikely.

“Financial markets are quiet on Thursday, US equity markets are closed, and the Treasury market has shortened hours due to President Carter’s funeral.

“Since UK yields have been moving higher along with US yields, the fact that US bond markets are quiet could spill over to the UK. However, this could be a short reprieve.”

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02:40 PM GMT

Shadow minister mocks Chancellor during debt turmoil

It is still unclear whether the Chancellor is already on her way to China or is travelling later - and the shadow cabinet is showing no mercy after her no-show during an urgent question in the Commons today.

The shadow business secretary Andrew Griffith, who has previously warned that Labour will choke off economic growth , said Rachel Reeves was absent from Parliament at a “critical moment” for financial markets.

The former technology secretary has clearly been having some fun with artificial intelligence today:

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02:28 PM GMT

Investors predict further slump in pound to rescue Reeves from gilts crisis

The fall in the pound could eventually ride to the rescue of the Chancellor, economists have said, as the sell-off in bond markets slows.

Sterling fell as much as 1pc today to a 14-month low of $1.224 while bond yields initially surged, with the 10-year gilt coupon rising as much as 13 basis points to 4.92pc, its highest since 2008.

However, the 10-year yield has eased since early trading, and last stood at 4.8pc.

Deutsche Bank said the weakening pound would eventually calm bond markets by attracting foreign investors, making UK assets cheaper and reducing Britain’s reliance on foreign funding.

Analysts said it is largely the pound “that will do the work of stabilising the bond market combined with an eventual peak of US yields”.

They wrote to clients: “Rather than a vicious negative spiral or a crisis, sterling weakness should be considered a natural equilibrating process that cheapens up gilts so they become attractive again for foreigners to buy.”

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01:57 PM GMT

Reeves left herself ‘razor-thin margins’ to balance the books, say economists

The Chancellor’s decision to leave such a small amount of headroom in the Budget last year is the reason she could be forced to cut public spending or raise taxes, economists have said.

At the October Budget, the Office for Budget Responsibility (OBR) projected the public finances would run a surplus of just 0.3pc of national income, equivalent to about £10bn, in the three later years of the forecast.

However, that headroom has been eroded by the surge in government borrowing costs, as 30-year bond yields rise to their highest level since 1998.

Isabel Stockton, an economist at the Institute for Fiscal Studies (IFS), said Ms Reeves had left herself a “razor-thin margin” under her fiscal rules.

She said an increase of half a percentage point across relevant interest rates – similar to the increase seen over the last month in 10-year-gilts – would, if sustained, be expected to add some 0.25pc of national income to debt interest spending in four years’ time.

She said: “The issue here is not so much that the past month has been especially eventful, but more that the margin was so small to begin with.

“If continuing to meet the fiscal target requires new tax rises, or cuts to the already tight looking spending envelope for the subsequent spending review, then the Chancellor – and we – should not be surprised.”

She added that the recent rise in gilt yields “is by no means unusual by recent historical standards”.

“This highlights the risk of governments staking their fiscal credibility on targets that are met by extremely thin margins,” she said.

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01:25 PM GMT

Lammy defends Reeves’s record on the economy

Foreign Secretary David Lammy has defended Rachel Reeves’s stewardship of the economy and dismissed comparisons with the turmoil in the wake of the Liz Truss mini-budget.

The cost of long-term government borrowing has surged to its highest level since 1998 this week, while the value of the pound today dropped to its lowest level since 2023 amid concerns about the sustainability of the public finances.

During a speech in London, Mr Lammy told reporters: “I think it is important to recognise that the the environment is one in which the Chancellor of the Exchequer has set out some fiscal rules on investment and on stability, we’re meeting those rules two years earlier.

“I’ve listened to much of the comment, and I think all of the commentators have recognised that not just in the UK, but also in the United States, there’s international volatility in relation to the gilts market.

“The central thing in the UK, particularly in relation to borrowing, is growth in our economy. That’s what I set out as a central objective for this department, in contributing to that growth in the growth markets around the world and working alongside our colleagues in Department of Business and Trade, particularly to deliver that.

“I don’t recognise, the desperate instability, the Kamikaze budget, the self-inflicted wounds that we saw during the Liz Truss period.”

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01:07 PM GMT

China trip ‘alarming’ as Budget plans unravel, says shadow minister

Shadow business minister Dame Harriett Baldwin called for Rachel Reeves to reconsider her trip to China.

She said: “She should certainly have been in the Commons to answer urgent questions from parliamentarians today. The Labour front bench was virtually empty.

“It’s clear that the actions that she took in the Budget have really damaged business confidence and they’ve really damaged the growth of the UK economy. That’s what the bond markets are reacting to, because they can see that her plans are unravelling.

“In this context, it does seem alarming that both she and the Governor of the Bank of England are planning to be out of the country at the same time.”

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12:53 PM GMT

Reeves ‘will be forced to hold Spring Budget’ amid market turmoil

Rachel Reeves will be forced to hold a Budget this spring in which she will slash government spending amid surging borrowing costs, investors have warned.

Matthew Amis, investment manager at Abrdn, said the drop in the pound to its lowest levels since 2023 was the “inevitable consequence of a badly received Budget”.

The Chancellor amended the UK’s fiscal rules in October as she announced £70bn of spending plans.

She also committed to holding only one Budget a year.

Mr Amis said: “The UK is borrowing a lot this year, investors need confidence to buy that debt otherwise gilt yields will continue to move higher and the currency will continue to weaken.

“What might Reeves do? The spending review is not due to be delivered until June, that’s a long time for the market to speculate with confidence continuing to erode.

“We ultimately expect to see a Spring budget alongside the OBR forecasts, where she signals greater cuts to government spending.”

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12:29 PM GMT

Stride urges Reeves to cancel China trade trip amid markets turmoil

Shadow chancellor Mel Stride urged Rachel Reeves to cancel her trip to China and focus on the UK economy.

Speaking following an urgent question on the bond market turmoil in the Commons, he said: “Today Labour has been forced to make a panicked attempt to reassure the markets on the economic mess of their own making.

“But Rachel Reeves is missing in action - instead wheeling out her deputy to defend her loss of control of the public finances.

“The Chancellor should now cancel her travel and focus on this country instead.”

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12:22 PM GMT

Labour accused of being ‘worse than the Conservatives’ with economy

A Liberal Democrat MP used the turmoil in bond markets to claim that has been “worse than the Conservatives” at running the economy.

Mike Martin, the MP for Tunbridge Wells, pointed to the surge in the yield on 10-year UK gilts - an indicator of the cost of government borrowing - since Labour’s landslide election victory in July:

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12:09 PM GMT

Treasury minister denies that ‘austerity is back’ after borrowing costs surge

Treasury minister Darren Jones defended the Government’s fiscal rules as the “absolute opposite of austerity” as Tory MPs said that government spending cuts are “back”.

Conservative former minister Graham Stuart said: “It’s quite clear there isn’t going to be, if (Mr Jones) sticks to his word, any more borrowing or any more taxes. So then he leaves one option, given the numbers, and that is going to be cuts in public services.

“And I wonder whether his colleagues behind him on those benches realise that that is the reality. What word is he going to use other than austerity to describe it?”

Conservative MP Sir Bernard Jenkin (Harwich and North Essex) said: “By underlining that there will not be any tax increases, there will not be any increases in borrowing, he is effectively saying austerity is back, because there is no way that the public finances can be remedied again by another budget of wishful thinking, pretending that increased borrowing and increased spending will produce growth.”

In response to Sir Bernard, Mr Jones said: “This is not austerity. He will know full well that, what is austerity? Austerity was ideological cuts to public financing and the size of the state. It was minus 3pc cuts, irrespective of what that meant for particular public services or for people across the country.

“That is far from what the Chancellor unveiled in her Budget in the autumn. It was the absolute opposite of austerity, as we increased financing into front line public services, and will continue to do so.”

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11:55 AM GMT

Britain heading towards ‘financial crisis’, says Tice

The Chief Secretary to the Treasury has been urged to tell the Chancellor to “cancel her ridiculous trip to China” when Britain’s financial markets are in turmoil.

Reform MP Richard Tice told the Commons that the UK is “heading towards, be under no illusion, a financial crisis,” and said Rachel Reeves must “cut daft spending, cut wasteful regulations in order that we can create some growth”.

Darren Jones replied: “I think the question Mr Speaker was whether I was going to demand the Chancellor comes back from her trade trip to China. I won’t, no.”

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11:48 AM GMT

Reeves has ‘fled to China’ amid bond market turmoil, MPs told

A Conservative former minster has accused Rachel Reeves of having “fled to China”, as MPs grilled the Government on its fiscal plans.

In the Commons, Dame Harriett Baldwin said: “In yesterday’s extraordinary emergency statement from the Treasury to try and calm the markets the Treasury statement paid tribute to the fact it inherited the second lowest debt in the G7.

“And is the reason that the frontbench is so empty today, the Chancellor has fled to China, that she has realised that her Budget means that she now is the arsonist?”

Treasury minister Darren Jones replied: “The Chancellor is going on her trip to China, it has been well documented for many weeks, an important visit in terms of trade and investment in the economy here in the UK.

“And might I just say there was no emergency statement, or emergency intervention, these are make-belief words being propagated by members on the benches opposite. The Treasury responded to requests from journalists about headroom, as we might do in the normal way.”

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11:40 AM GMT

Jones declines to say whether Chancellor has travelled to China

Treasury minister Darren Jones declined to say whether Chancellor Rachel Reeves has departed for her trip to China as MPs questioned why she was not in the Commons to answer an urgent question on public finances.

Conservative MP for Harborough, Oadby and Wigston, Neil O’Brien, said: “I think I heard the Chief Secretary say that the Chancellor hasn’t gone to China.

“Can he just confirm, firstly, that she is still planning to go? Second, can he say if she’s not gone to China yet, why is she not here today? I think lots of people would like to hear from her.

“And third, would he confirm has the Chancellor talked to the Governor of the Bank of England about the market turbulence at any point in the last seven days?”

Mr Jones replied: “The Chancellor is going to China that has been well documented. And again, I’m sorry to disappoint (Mr O’Brien) that I’m here. I would just refer him and his colleagues to the title of the urgent question.

“The title of the urgent question is about a statement on borrowing cost and public finance, as he will know, I’m the minister for public finance. This is why I’m here answering his questions.”

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11:30 AM GMT

Reeves tax rises will be ‘swallowed up’ by borrowing, warns Stride

The Chancellor has been accused of allowing borrowing to “let rip” and “squandering the endeavours of millions of hardworking people”.

Shadow chancellor Mel Stride told MPs: “Every pound we spend on debt interest is money we cannot spend on the public’s priorities. The Government’s decision to let rip on borrowing means that their own tax rises will end up being swallowed up by the higher borrowing costs at no benefit to the British people.

“Far from this Government laying the foundations for a stronger economy, the Chancellor is squandering the endeavours of millions of hardworking people up and down our country who are now having to pay the price for yet another socialist government taxing and spending their way into trouble.

“Does (Mr Jones) not now accept that it is time to change course?”

Treasury minister Darren Jones, in his reply, said: “He asks me about the fiscal rules - as I said in my statement just now, they are non-negotiable.

“As the Chancellor set out at the Budget we have two fiscal rules - one that day-to-day spending should be met by tax receipts and the second that debt should be falling as a size of the economy.”

Mr Jones went on to criticise the Tories over their record on borrowing, saying an “absolute failure to get growth into the economy” had meant they “stacked up the country’s credit card”.

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11:24 AM GMT

Treasury minister fails to rule out more borrowing by Reeves

The Chief Secretary to the Treasury failed to guarantee that there would be no tax rises or increases in borrowing by the Chancellor.

Sir Edward Leigh, the Father of the House, asked Darren Jones if he could guarantee that there would be no new tax increases or borrowing announced by Rachel Reeves.

The Chancellor is conducting a spending review which will set out government department budgets from the 2026/27 financial year.

The Chief Secretary to the Treasury said: “I can absolutely assure the Father of the House that as we are working through this spending review, it is on the basis of the envelope that was set at the Budget.

“Pubic services will have to operate within the means that we are providing to them.

“The OBR forecast will come in March, which will then give us the latest set of information which we will work to with departments.

“But this is why we have set up organisations like the Office for Value for Money where we’ve set tough productivity and efficiency targets for departments and why we’re investing in technology to improve the productivity of the public services we provide, because public services must live within their means, as set out by the Budget, and that’s an absolute guarantee from this government.”

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11:12 AM GMT

Reeves to address Commons in March, says Treasury minister

Darren Jones said the Chancellor would address the Commons when the OBR delivers its updated economic and fiscal forecast on March 26.

The Chief Secretary to the Treasury said: “Only the OBR’s forecast can accurately predict the effect on the public finances of any changes in financial markets or the economy, and I will not pre-empt their forecast.

“There should be no doubt of the Government’s commitment to economic stability and sound public finances; this is why meeting the fiscal rules is non-negotiable.”

Mr Jones went on to accuse the Conservatives of having “crashed the economy” when in power.

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11:02 AM GMT

Public services must ‘live within their means’, says Jones

Darren Jones insisted the Government’s fiscal rules are “non-negotiable”, warning that public services will have to “live within their means”.

Rachel Reeves committed in the Budget that day-to-day spending would be met by tax receipts and that debt should be falling as a percentage of the economy.

The recent rise in borrowing costs has raised concerns that the Chancellor will be forced to raise taxes or cut public spending to balance the Treasury’s books.

The Chief Secretary to the Treasury said debt levels were rising because of an “absolute failure to get growth into the economy” by previous Conservative governments.

He said: “They could not make the numbers add up. They’ve stacked up the country’s credit card. They’ve left it to this party to deal with, and we are going to deal with it.

“That is why these fiscal rules are non-negotiable.”

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10:49 AM GMT

‘Where is the Chancellor?’ asks Stride

Mel Stride asked the Commons “where is the Chancellor?” as he warned that rising government debt and low growth is a cause for concern.

He said it was a “bitter regret” that Rachel Reeves was “nowhere to be seen” as he asked an urgent question in the Commons on the turmoil on financial markets.

He pointed out that the premium on UK borrowing costs compared to German bonds recently hit its highest level since 1990.

He warned the Chief Secrtary to the Treasury that the Government is on course “to breach its fiscal rules”.

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10:45 AM GMT

Markets functioning in ‘orderly way’, insists Jones

The Chief Secretary to the Treasury has said the situation in financial markets is “always evolving” as he addressed an urgent question on the turmoil in financial markets.

Darren Jones said the surge in bond yields had been “largely driven by data and geopolitical events”.

He insisted the gilts market “continues to function in an orderly way” and that there remained “strong demand” for UK debt.

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10:22 AM GMT

FTSE 250 hits eight-month low amid bond market rout

The FTSE 250 has touched a more-than-eight-month low as retail stocks were hammered by disappointing Christmas trading updates and the bond market rout deepened.

The UK mid-cap index has dropped 1.1pc  today to its lowest level since April as stocks come under pressure from the sharp rise in British borrowing costs.

B&M tumbling 13.4pc to the bottom of the FTSE 250 after it lowered the top end of its annual profit forecast.

On the FTSE 100, Marks & Spencer was the worst performer, falling by 6.3pcas it warned about rising costs and economic headwinds this year.

Tesco slid 1.5pc after it maintained its full-year profit outlook.

The FTSE 100 was up 0.6pc.

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09:49 AM GMT

Speaker grants urgent question on market turmoil

The Speaker has granted an urgent question in the House of Commons on the turmoil impacting Britain’s financial markets.

Shadow chancellor Mel Stride will ask Rachel Reeves to make a statement on the growing pressure of borrowing costs on the public finances.

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09:42 AM GMT

Reeves fails to calm markets as pound plunges

The pound has plunged to its lowest level since 2023 despite Rachel Reeves’s attempted intervention designed to quell turmoil in the markets.

Sterling has sunk by 0.9pc to $1.226 today - a severe drop from more than $1.27 less than a month ago and putting it on course for its biggest three-day fall in nearly two years.

The latest decline comes after the Treasury was forced to intervene to stabilise financial markets on Wednesday amid growing concern over the impact of Ms Reeves’s Budget and a surge in borrowing costs.

The Treasury attempted to dismiss as “pure speculation” suggestions that rising debt costs had wiped out all of Ms Reeves’s headroom and put her in breach of her own fiscal rules.

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09:20 AM GMT

Reeves ‘in the firing line’ over sustainability of public finances as borrowing costs surge

Government borrowing costs continue to rise amid doubts over the sustainability of Rachel Reeves’s tax and spending plans.

The yield on the benchmark 10-year UK gilt has climbed to 4.83pc, having earlier hit its highest level since 2008.

Kathleen Brooks, research director at XTB, said: “The UK’s fiscal position continues to look perilous as we start trading on Thursday. The relentless rise in UK yields has continued but at a slower pace.”

She added: “The sell-off in UK bonds this week is a warning shot from the bond vigilantes.

“The UK is reliant on investors to fund its deficit. The UK is not unique in needing this, however, the US can fund its deficit more easily because the USD is the reserve currency, and the eurozone as a whole runs a surplus.

“Since the market’s focus so far in 2025 has turned to the sustainability of public sector finances, the UK is understandably in the firing line.”

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09:11 AM GMT

Reeves ‘massively out of her depth’

Rachel Reeves’s Budget “trashed the economy” as she “misjudged the effect of her tax rises”, according to Telegraph readers.

Here are a selection of views on the turmoil in the markets from the comments section below - and you can join the debate here :

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09:00 AM GMT

Pound poised for worst drop in two years

The pound is heading for its biggest three-day drop in nearly two years as it comes under pressure from a sell-off in bonds.

Sterling was last down 0.9pc at $1.226, hitting its lowest since November 2023.

It was set for a third consecutive daily drop, bringing losses for that period to 2pc, the most since February 2023.

It comes as the UK market has been hit hard by a sell-off in global bonds among major economies.

The benchmark 10-year gilt yields have spiked by a quarter point this week alone to their highest since 2008, amid deteriorating confidence in the outlook for the public finances.

Concern about rising inflation, reduced chances of a drop in interest rates and uncertainty over the plans of Donald Trump’s incoming US administration has sent bond yields soaring around the world this week.

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08:39 AM GMT

Traders reduce bets on interest rate cuts

Traders are reducing bets on the number of interest rate cuts by the Bank of England this year as markets are rattled by the rare combination of the pound falling as government borrowing costs rise.

Money markets indicate that policymakers will only reduce the Bank Rate once this year, compared to two cuts being priced in at the start of the year.

It comes as the pound falls despite a jump in bond yields - a measure of the cost of government borrowing. Rising bond yields usually give support to a currency as it attracts investors to put their cash into that economy.

However, the fall in the pound to its lowest level since 2023 just as 30-year gilt yields hit their highest level since 1998 signals that investors have lost faith in the Government’s ability to keep a lid on the national debt and control inflation.

Sterling today sank below $1.23 having started the year above $1.25. Options traders are placing bets on the currency dropping as low as $1.15.

That said, the pound’s latest struggles are less severe than in September 2022, when it crashed from close to $1.17 to below $1.07 in a couple of weeks in the wake of Liz Truss’s mini-budget.

Jim Reid, an analyst at Deutsche Bank, said: “With sterling weakening, that meant growing questions were asked about whether the Bank of England could cut rates as fast as expected.

“Indeed, investors dialled back their expectations for rate cuts this year by four and a half basis points compared to the previous day, so they now only see 48.5 basis points by the December meeting.

“So collectively, this rise in yields is adding to the risk that the Government will breach their fiscal rules and have to announce further consolidation (tax rises and/or spending cuts), whilst the weaker currency will add to inflationary pressures at the same time.”

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08:12 AM GMT

Borrowing costs surge higher as bond trading begins

The bond markets are delivering more pain for the Treasury after a slump at the start of trading.

The yield on 10-year UK gilts - a measure of government borrowing costs - immediately surged by nine basis points to 4.88pc.

The yield on shorter two-year bonds rose by a similar amount to 4.61pc.

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08:07 AM GMT

UK stocks down amid slump in pound

The FTSE 100 edged higher at the start of trading as the value of the pound slumped further.

The UK’s blue-chip index edged lower to 8,248.20 while the midcap FTSE 250 was down 0.6pc to 19,833.23.

The pound has slumped amid a flight from UK assets, according to investors, amid concerns about the UK’s public finances and inflation.

Valentin Marinov of French international bank Credit Agricole said: “The pound could remain the preferred pressure valve for anxious investors who worry about the outlook of their UK portfolios.

“Markets are quite skittish at the moment. FX traders will continue to ‘milk’ the heightened FX volatility for whatever it’s worth.”

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07:48 AM GMT

Traders target pound amid bond market sell-off

The pound has slumped as traders bet on greater volatility in Britain’s currency following the turmoil in bond markets.

Sterling was down as much as 0.7pc to $1.228, which has set alarm bells ringing as it comes amid a surge in government borrowing costs.

So-called options traders expect volatility in the pound to remain over the coming days, with Wednesday proving to be their busiest day for sterling positions since the currency hit its lows following the mini-Budget crisis in 2022.

A gauge of long-term market sentiment toward the pound has hit its most negative level in 14 months, according to Bloomberg News.

Typically, higher interest rates on bonds boost the appeal of a currency, so the drop over recent days indicates investors are turning away from the UK amid concerns about its fiscal position and inflation.

Several traders have opened the positions focused on a weaker pound as trading soared to £13.7bn on Wednesday.

Many are targeting a fall to as low as $1.15 — a 7pc drop from current levels — according to Nomura in London.

Options trader Sagar Sambrani told Bloomberg: “This year has ushered in significant market volatility with the UK in focus.”

The pound was also down 0.6pc against the euro at €1.192, making the single currency worth 83.9p.

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07:34 AM GMT

Unemployment low by historical standards, insists Government

As figures showed the biggest drop in white collar hiring since Covid, a Government spokesman said:

Unemployment is currently low by historical standards, and the OBR forecast it to fall to a 4.1pc average this year.

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07:26 AM GMT

Professional job vacancies dry up ahead of Reeves’s tax raid

White collar hiring has suffered its biggest plunge since Covid as bosses cut costs in anticipation of the £25bn National Insurance raid by the Chancellor.

Bosses were also wary of the 6.7pc increase in the minimum wage, according to a survey by the Recruitment and Employment Confederation (REC) and KPMG.

Both measures come into force this April.

The REC’s survey shows vacancies for permanent executive and professional roles slumped in December at the steepest pace since June 2020, after the Chancellor announced the tax increases.

The index of advertised roles in this sector fell to a four-and-a-half-year low of 39.3, down from 40.7 in November. Any figure of below 50 indicates a drop, so this suggests an acceleration in the fall in hiring.

This was the steepest fall of any sector but was part of a wider decline across the country, with overall permanent vacancies dropping at the fastest pace since August 2020.

As well as cutting vacancies, businesses also took on fewer staff, with permanent placements falling at the fastest pace since August 2023.

Recruiters said companies have put hiring decisions on ice over cost concerns ahead of Rachel Reeves’s increase in employer Nics, as well as the upcoming 6.7pc rise in the minimum wage and Labour’s Employment Rights Bills, tabled in October, which the Government estimates will cost businesses up to £4.5bn a year.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), said: “This report emphasises a weak mood in some businesses as they built their budgets for this year, and made changes designed to save on costs after a tough Budget.”

More than half (52pc) of companies expect to either reduce hiring, cut jobs or reduce pay rises for their employees in response to the Budget, according to separate research by accountancy firm Grant Thornton.

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07:16 AM GMT

Pound plunges to lowest level since 2023

The pound has sunk to its lowest value against the dollar in more than a year amid a bond-market sell-off.

Sterling fell 0.5pc in early morning trading to as low as $1.229, where it last stood in November 2023.

It comes amid a surge in bond yields which has sent the cost of government borrowing higher.

Meanwhile, the US dollar has been strengthening in value, pushing US bond yields higher, putting the pound under pressure and raising bond yields in anticipation of potentially inflationary policies from Donald Trump.

Kyle Chapman, an analyst at Ballinger Group, suggested the UK bond market drama may be nearing its end.

She said: “The moves are related to an ongoing concern about UK borrowing levels but I don’t see enough of a reason for such a rapid market move.

“I think that we are going to see some recovery quite quickly once the market calms.”

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07:07 AM GMT

City faces worst collapse in profits since financial crisis after tax raid

Profits in financial services are set to fall at their fastest rate since the depths of the financial crisis after Rachel Reeves’s Budget tax raid sent costs spiralling.

Britain’s leading industry is shedding staff and slashing investments as optimism in the tumbles to its lowest level since the aftermath of Liz Truss’s mini-budget in 2022, according to a quarterly survey of the financial industry by the Confederation of British Industry (CBI).

Two-thirds of financial services companies anticipate a drop in profits in the next three months, with just one in 10 expecting an increase - an imbalance that matches the very worst moments of the financial crisis when RBS was bailed out by the Government in late 2008.

It came as spiralling borrowing costs in financial markets piled fresh pressure on the Chancellor , raising the prospect Ms Reeves will be forced to raise taxes again to avoid breaking her own fiscal rules.

The pound plunged to a nine-month low, while the yield on 10-year gilts - a measure of the British Government’s borrowing costs - climbed to 4.8pc, its highest level since 2008.

Economists at Deutsche Bank said this threatens to wipe out all of Ms Reeves’s £10bn headroom against her own borrowing targets, while weak economic growth further undermines the tax revenues she needs to keep the deficit in check.

The Chancellor launched a record-breaking £40bn tax raid in October, including a £25bn increase in employers’ National Insurance Contributions, which increases the cost of employing workers. The tax paid by bosses on their workers’ wages is set to rise from 13.8pc to 15pc and the earnings threshold at which it kicks in is being lowered from £9,100 per year to £5,000.

The latest GDP figures indicate the economy had already gone into reverse before the Budget, shrinking by 0.1pc in October .

Louise Hellem, chief economist at the CBI, said more customers are struggling to repay loans while economic growth risks withering as the powerful financial sector slumps.

She said: “Financial services firms faced a challenging end to 2024, marked by a record-fast decline in spreads and the quickest increase in non-performing loans over three years.

“These adverse conditions contributed to a fall in both profits and optimism, despite a pick-up in business volumes growth. The survey also highlighted widespread concerns among firms about the potential drag on investment from rising costs following the Autumn Budget.”

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07:02 AM GMT

Good morning

Thanks for joining us. The City is facing its worst collapse in profits since the global financial crisis in the wake of the Chancellor’s tax raid on employers.

Two-thirds of financial services companies anticipate a drop in profits in the next three months, the Confederation of British Industry (CBI) said, just as markets are roiled this week by a surge in government borrowing costs.

Bond yields have surged, all but wiping out Rachel Reeves’s fiscal headroom, according to Deutsche Bank.

5 things to start your day

1. Bank of England vows to create ‘leaner, meaner’ City with appetite for risk | Changes will lead to ‘necessary shift’ the economy ‘needs’ in order to grow, says Bank deputy chief

2. Treasury forced to intervene in market turmoil | It issued the first such statement since the mini-Budget crisis of 2022

3. Britain scrambles to prevent blackouts as temperatures plummet | Grid operator seeks to bolster power as cold weather expected to drive higher electricity use

4. Thousands of civil servants to strike ‘indefinitely’ over back-to-office demand | Staff at HM Land Registry will not cover for colleagues or take on extra work from Jan 21

5. Jaguar sales drop by more than a quarter ahead of controversial relaunch | Slump comes after brand halted sale of five existing models and underwent a major design overhaul

What happened overnight

Asian stocks were mostly lower after UK and US stock indexes finished mixed.

Shares fell in Tokyo after Japan reported strong wage growth for November, data that might help persuade its central bank to raise interest rates.

The Nikkei 225 index dropped 1.4pc to 39,417.04, while the dollar slipped against the Japanese yen. A dollar bought 157.78 yen, down from 158.36 late Wednesday.

Chinese shares were mixed. Hong Kong’s Hang Seng index edged 0.1pc higher, to 19,296.89, while the Shanghai Composite index lost 0.3pc to 3,220.72.

In Australia, the S&P/ASX 200 gave up 0.4pc to 8,312.20.

South Korea’s Kospi edged less than 0.1pc higher, to 2,521.67 despite strong gains for technology companies and car makers.

Taiwan’s Taiex sank 1pc and the Sensex in India was down 0.3pc. In Bangkok, the SET slipped 1.3pc.

US markets will be closed today to observe a National Day of Mourning for former President Jimmy Carter.

On Wall Street, the Dow Jones Industrial Average rose 0.3pc to 42,635.20, the S&P 500 rose 0.2pc to 5,918.25 and the Nasdaq Composite fell 0.1pc to 19,478.88.

It came a day after strong reports on the economy stirred up worries that inflation and interest rates may remain higher than expected.

In the bond market, benchmark 10-year US Treasury notes yielded as much as 4.73pc, a peak since April 2024, and were 4.71pc last night. They were up from 4.69pc late on Tuesday.

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