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Rachel Reeves vowed to act if her fiscal plans are disrupted by turmoil in the gold market, as she announced a deal with China aimed at boosting Britain’s stagnant economy.
The UK chancellor, speaking in Beijing on Saturday, insisted she would stick to her fiscal rules, which have come under pressure after Borrowing costs for 10 years in the UK last week rose to the highest level since the global financial crisis.
“Those fiscal rules that I put in the budget in October are non-negotiable and we will take steps to ensure that those fiscal rules are met,” she told reporters.
Reeves indicated that spending cuts may be needed if the £9bn of headroom in her fiscal rule – that day-to-day spending is covered by tax receipts – is wiped out by rising borrowing costs.
The tipping point will be on March 26, when the Office for Budget Responsibility publishes new forecasts. Reeves has signaled that she will not pay taxes at that time – which is normally reserved for the budget.
She said: “I have committed to having only one budget a year and that budget will be in the autumn.”
The UK Chancellor said “re-engaging with China” would add up to £1bn of value to the UK economy as she defended her budget plans.
She met her counterpart, Vice Premier He Lifeng, to hammer out a deal that included an agreement to expand access to finance for British companies and remove trade barriers to UK agricultural exports to China.
He said: “China has opened its doors and will only open wider to give the UK and other countries more development opportunities.”
Reeves said: “Growth is the number one mission of this Labor government. I am in China this weekend to achieve growth.”
Labor has been on a charm offensive to improve ties with China after a turbulent last few years under the Conservative government. Bilateral relations thawed after Prime Minister Keir Starmer and President Xi Jinping met on the sidelines of the G20 summit in Brazil in November.
Reeves’ trip was overshadowed by this week’s sell-off in bond markets, which pushed Britain’s borrowing costs to their highest level since the 2008 financial crash.
Investors are increasingly concerned about government debt, the threat of stagflation and price pressures. Conservatives and Liberal Democrats said she should have canceled her trip to Beijing.
The positive shift in relations with China contrasts with strained relations with the Tories. Towards the end of the semester, London and Beijing were “barely speaking”, said Kerry Brown, director of the Lau China Institute at King’s College.
Beijing cringed when former prime minister Rishi Sunak labeled China the “biggest state threat” to the UK’s economic security. Sunak highlighted alleged state-sponsored cyber security attacks and criticized China’s authoritarianism at home and assertiveness abroad.
“Labour is trying to get back to Britain’s default position on China – a relationship without great warmth or closeness, but pragmatic and balanced,” Brown said.
HSBC chairman Mark Tucker, who co-chaired the summit, said the two sides were “working on ways to achieve and encourage cross-border investment in renewable energy generation and storage and new energy transmission solutions where we have so much to learn from each other”.
Several leading Chinese renewable energy companies and electric vehicle suppliers are preparing to invest in the UK, pending an improvement in geopolitical ties before proceeding, according to people familiar with the matter.
Reeves said reforms to UK listing rules would make it easier for Chinese companies to list in London. The City of London is courting foreign companies to list on the London Stock Exchange following an exodus of companies that have moved their listings abroad or gone private.
The agreement was scant on details of how it would deliver £1bn of growth for the UK. The two sides agreed that China will issue its first overseas government green bonds in London this year as the capital positions itself as a hub for green finance. In 2016, China issued its first government bonds outside of China in London in a “golden era” of UK-China relations during David Cameron’s tenure as prime minister.
Fast fashion company Shein has filed confidential filings to list in London after being rejected by US regulators. It is awaiting approval from UK and Chinese authorities before proceeding with an initial public offering with a planned market valuation of £50 billion.
The delegation included Andrew Bailey, Governor of the Bank of England, Nikhil Rathi, Chief Executive Officer of the Financial Conduct Authority, Schroders Chief Executive Officer Richard Oldfield and José Viñals, Chairman of Standard Chartered.
Reeves’ trip comes as parliament awaits the results of Labour’s UK-China review, which will review the state of bilateral relations and is expected to develop recommendations on how to deal with China.
Sam Hogg, an expert at the Oxford China Policy Lab, said the review was “likely to be a box-ticking exercise”.
