The bond market is wrong. Reeves should not cut welfare to placate the City | Richard Partington

4 hours ago7 min read1 comments

With less than three weeks remaining until Chancellor Rachel Reeves's pivotal autumn budget, the financial world holds its breath, awaiting the first official verdict from the Office for Budget Responsibility this Monday. This moment is far more than a procedural checkpoint; it is the first real stress test of Labour's economic credibility, a moment of truth after weeks of speculative kite-flying and ominous headlines about a fiscal black hole potentially reaching £30 billion.The core question reverberating through trading desks from Canary Wharf to Wall Street is not just how this gap will be filled, but at what cost to Britain’s already fragile growth prospects, its simmering inflationary pressures, and the living standards of a populace still reeling from a cost-of-living crisis. The chancellor’s unenviable priority is to placate the bond market—that faceless, often ruthless arbiter of national economic fate—whose sentiment can dictate the cost of government borrowing and, by extension, the fiscal space available for any administration.Yet, there is a profound and dangerous miscalculation taking root in the City: a simplistic, almost reflexive bias towards deep welfare cuts as the primary lever for fiscal consolidation. This view is not just misplaced; it is a myopic prescription that could condemn the UK economy to a worse long-term trajectory.History offers a stark lesson in the counter-productivity of such austerity. The post-2010 era demonstrated that severe cuts to social security, rather than bolstering confidence, can severely dampen aggregate demand, stifle economic mobility, and exacerbate inequality, creating a vicious cycle of lower growth and higher demand for state support.The bond market’s short-termist gaze often fails to account for the multiplicative effect of investing in people—that keeping a family out of poverty, upskilling a worker, or providing adequate childcare is not merely a social cost but a critical economic investment in future productivity and stability. For Reeves, the path forward requires navigating between the Scylla of market turmoil and the Charybdis of social recession.The smarter, more sustainable approach lies not in blunt cuts but in a nuanced strategy that combines targeted, progressive tax reforms—perhaps a more robust windfall tax on fossil fuel giants or a reassessment of capital gains—with a steadfast commitment to supply-side investments that boost the economy’s potential. The OBR’s forecast will provide the numbers, but the real test for the chancellor will be her courage to educate the market, to argue that true fiscal responsibility means building a resilient, inclusive economy, not simply slashing the safety net upon which millions depend and upon which future prosperity is built.

#lead focus news

#UK budget

#bond market

#welfare cuts

#Rachel Reeves

#OBR

#fiscal policy

#autumn budget

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