Starmer Backs Ruthless Spending Cuts Amid Market Turmoil

The Treasury will adopt a “ruthless” approach to spending cuts as part of the government’s commitment to fiscal discipline, Prime Minister Keir Starmer announced on Monday. This comes against a backdrop of rising borrowing costs and market volatility, heightening concerns about the UK’s economic trajectory.

Speaking at the launch of the government’s artificial intelligence action plan in London, Starmer reaffirmed Chancellor Rachel Reeves’ stance on fiscal rules, stating, “We’ve got clear fiscal rules, and we are going to keep to those fiscal rules.”

He praised Reeves for her “fantastic job” in navigating challenging economic conditions, despite growing unease among some Labour MPs about potential public spending reductions.

The announcement follows a sharp rise in long-term government borrowing costs, with 30-year gilt yields climbing to 5.47%—a level not seen since 1998. The benchmark 10-year borrowing cost also reached 4.86%, close to levels recorded during the 2008 financial crisis. With sterling sliding to $1.21, market jitters have further narrowed the Chancellor’s fiscal flexibility, raising the specter of higher mortgage rates for UK households.

Starmer defended the government’s approach, emphasizing that economic growth remains the administration’s “number one priority.” He pointed to initiatives in planning reform, industrial strategy, and AI adoption as key drivers of growth but underscored the importance of adhering to fiscal rules to maintain stability.

Despite pledges that future spending reductions will avoid the austerity levels seen under previous governments, ministers are bracing for a tough spending review later this year. Departments are expected to deliver efficiency savings equivalent to 5% of their budgets, with Downing Street officials emphasizing that these measures are necessary to balance the budget without increasing borrowing or taxes.

The Prime Minister also hinted at significant public service reforms, describing them as “the lever that hasn’t been pulled enough.” However, his refusal to guarantee Reeves’ position as Chancellor beyond the current parliament has fueled speculation about potential shifts in the government’s economic team.

The Treasury’s approach comes amid criticism from opposition figures, with Conservative MP Gareth Davies accusing Labour of losing control over the economy. Meanwhile, the Institute of Directors warned that the economic slowdown has nearly erased the Chancellor’s fiscal headroom, leaving little room for maneuver in the face of further economic shocks.

As market pressures mount, all eyes are on the government’s next moves to balance fiscal prudence with the need to foster growth and protect public services. The upcoming spending review will test Starmer’s and Reeves’ ability to navigate the fine line between stability and austerity.