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Rachel Reeves vowed to act if her fiscal plans were thwarted by turmoil in the bullion market as she announced a deal with China to boost Britain's stagnant economy.
The British chancellor insisted in Beijing on Saturday that she would stick to her fiscal rules, which have since come under pressure. 10-year borrowing costs in the UK last week it rose to its highest level since the global financial crisis.
“The fiscal rules that I set out in the budget in October are non-negotiable and we will take action to ensure that we meet those fiscal rules,” she told reporters.
Reeves hinted that spending cuts might be needed if £9bn of her fiscal rule – that day-to-day spending is covered by tax revenue – is wiped out by rising borrowing costs.
The tipping point will come on March 26, when the Office for Budget Responsibility will publish new forecasts. Reeves indicated she would not introduce taxes at this point — a move usually reserved for the budget.
She said: “I have committed to only having one budget a year and that budget will be in the autumn.”
The British chancellor said “re-engaging with China” would add up to £1 billion to the UK economy as she defended her budget plans.
She met with her counterpart, Vice Premier He Lifeng, to seal the deal, which included an agreement to expand financial access for British firms 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 opportunities to develop.”
Reeves said: “Growth is the number one mission of this Labor government. I am in China this weekend to achieve growth.'
Labor has launched a charm offensive to improve relations with China after the turbulent final years of Tory rule. Bilateral relations soured after Prime Minister Keir Starmer and President Xi Jinping met on the sidelines of November's G20 summit in Brazil.
Reeves' trip was overshadowed this week by a sell-off in bond markets that pushed Britain's borrowing costs to their highest level since the 2008 financial crash.
Investors are increasingly worried about government debt, the threat of stagflation and price pressures. The Conservatives and Liberal Democrats said she should have canceled her trip to Beijing.
The positive shift in relations with China contrasts with strained ties with the Tories. Towards the end of the term, there was “barely a word” between London and Beijing, said Kerry Brown, director of the Lau China Institute at King's College.
Beijing bristled when former prime minister Rishi Sunak described China as 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 overseas.
“Labour is trying to return to the default British position on China – a relationship without much warmth and 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 support cross-border investment in renewable energy generation and storage and new energy transport 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, waiting for improved 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 moving their listings overseas or going private.
The deal was tight-lipped on the details of how it would achieve £1bn of growth for the UK. The two sides have agreed that China will issue its first overseas sovereign green bond in London this year as the capital positions itself as a hub for green finance. In 2016, China issued its first sovereign bond outside of China in London in a “golden era” of UK-China relations during David Cameron's prime ministership.
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 £50bn.
The delegation included Andrew Bailey, governor of the Bank of England, Nikhil Rathi, chief executive of the Financial Conduct Authority, Schroders chief executive Richard Oldfield and José Viñals, chairman of Standard Chartered.
Reeves' trip comes as parliament awaits the outcome of Labour's UK-China audit, which will review the state of bilateral relations and is expected to make recommendations on how to deal with China.
Sam Hogg, an expert at the Oxford China Policy Lab, said the audit would “probably be a tick box”.
