Rachel Reeves is about to unleash an avalanche of misery – we’re just days from hell | Personal Finance | Finance
The Chancellor left the country completely unprepared for the unfolding disaster. The Conservatives increased the tax to its highest level since the war, but Reeves increased it to wartime levels. We now hand over a greater share of our national output than when Britain was fighting against Nazi Germany and the Empire of Japan. And Russia still can’t find money for the military, despite growing threats from China and Iran. The economy is barely growing, inflation is rising, and we are now headed for the biggest energy shock in history.
Today feels eerily like early 2020, the beginning of the pandemic. At that time, we were watching with amazement as Covid spread around the world. Stock markets shrugged. Then it started to melt when it hit it. Today politicians and markets deny the Iran war. There is Tehran Donald Trump It’s on the barrel for refusing to open the critical tanker supply route in the Strait of Hormuz. Now it will just sit still and wait for the oil shortage to end. It won’t take long. Trump is having a nervous breakdown at this possibility. Soon he won’t be the only one.
The lights are literally going out in South Korea as fuel reserves dwindle. Energy is rationed in Asia and Africa. If Ormuz continues to be blocked, it will soon be our turn. And thanks to Reeves, we are horribly exposed to the coming shock.
He is not responsible for the Iran war. He even showed good sense by encouraging more drilling in the North Sea. It’s not like Ed Miliband will listen. He wouldn’t recognize common sense if they attacked him with unmanned aerial vehicles.
Reeves inherited a fragile economy that was just beginning to recover. He killed that stone with his brainless tax and lightning spending, but he still can’t balance the accounts. We are on track to borrow a staggering £130bn this year. This has nothing to do with Iran. And the cost of servicing that debt is now exploding.
Before the Iran crisis, 10-year gold yields were around 4.25%. They reached an alarming 5.15%. Every 1 per cent rise in yields adds around £12bn a year to borrowing costs. The Chancellor lost his financial stake. Again.
Rising gilded products yield embedded Calamity Liz Truss. Under him, they peaked at just 4.42%. Today they are much higher and still climbing. But Reeves claims that stability has been restored. He won’t say that for a long time.
Inflation reached 3.3 percent. At some point the Bank of England will raise interest rates. Banks are already increasing housing loan rates in anticipation. Two-year adjustments jumped from 5.37% to 5.85% in one month. More than 1.5 million borrowers taking advantage of fixed-rate deals are expected to be hit this year. Energy bills will also increase in a double whammy. And that’s on top of all those extra taxes.
Unemployment fell to 4.9% in March, but vacancies are falling rapidly. Pressure on household finances is generally tightening.
Reeves is the only Labor figure who pretends to care about balancing the books. Backbenchers just want to spend, spend, spend. So are Keir Starmer’s heirs, from Angela Rayner to Andy Burnham and God help us Ed Miliband.
But we can’t borrow another penny without further spooking bond markets and pushing yields even higher. Reeves fell into the trap. We all are. More tax increases will further hurt growth, but Reeves will carry them through anyway. The avalanche is already roaring. Unless Trump can find a quick way out of Iran, everything will fall by the wayside. Starting with the chancellor.
