Ruth Gregory, economist at consultancy Capital Economics, said the movements seen so far would be sufficient to more than erase the headroom against the current budget rule, with the Treasury now on track to break the rule by almost £1bn. This estimate is derived from market-implied expectations for the BoE’s benchmark interest rate and the 20-year gilt yield.
“Reeves could soon face a nasty choice of breaking her fiscal rules or announcing more tax rises and/or spending restraint at a time when the economy is already weak,” said Gregory at Capital Economics.