Fears Rachel Reeves' borrowing strategy could lead to higher mortgage rates
The Government is considering plans to rip up borrowing rules and spend more on repairing the country - but analysis suggests the move could push up interest rates
by Sophie Huskisson · ChronicleLiveOfficial analysis suggests that Rachel Reeves's plan to overhaul borrowing rules to increase spending on the country's repair could lead to a rise in interest rates.
Treasury modelling from December indicates that altering the rules to permit more borrowing for investment could escalate the cost of debt for consumers and businesses. The analysis, viewed by the Sunday Telegraph, cautioned that each £25billion annual borrowing increase could push up interest rates by between 0.5 and 1.25 percentage points.
This analysis has sparked concerns that families with mortgages could be affected by higher interest rates, which surged following the economic chaos caused by Liz Truss's disastrous mini-budget in 2022.
The Chancellor is currently scrambling to find additional funds to rectify the severe inheritance left by the Tories, while maintaining Labour's manifesto pledge not to raise taxes on working individuals. Ms Reeves has indicated she might relax borrowing rules in the Budget on October 30, aiming to unlock £50billion of extra expenditure.
This move, which would involve adjusting how debt is defined, would enable her to borrow tens of billions of pounds more for investment into projects such as transport and clean energy schemes. Union leaders have been pressing the Government to act so it can channel more money into infrastructure - and avoid imposing another round of austerity on crisis-stricken public services, reports the Mirror.
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Economists are cautioning the Chancellor about the pernicious impacts of under-investment that has resulted in a "vicious circle of stagnation and decline" - warning that Labour risks failing to realise its "decade of national renewal" pledge if further cuts ensue.
The Chancellor signalled her strongest intent yet regarding raising borrowing for a substantial capital investment programme, with a commitment made on Saturday to "invest, invest, invest".
Last month, the Prime Minister dodged questions about whether he would overhaul fiscal policies in the upcoming Budget, which may allow for increased government borrowing to finance urgent repairs across the nation. During an interaction with journalists in Rome, Mr Starmer underscored the significance of economic growth declaring: "It's really important - the number one priority of this government is economic growth and all decisions will be made against that objective.
"A Treasury spokeswoman elaborated on the matter, explaining: "This analysis is clear that the relationship between fiscal plans, inflation and interest rates is complicated and can change significantly over time. The Chancellor has repeatedly said she will not play fast and loose with the public finances and will protect working people."
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