By David Milliken
WASHINGTON (Reuters) -British finance minister Rachel Reeves wants to promote Britain as a fiscally responsible investment destination at meetings in Washington this week, three years after one of her predecessors was called home early to be sacked due to a market crisis.
Britain’s Labour government, elected in July 2024, regularly contrasts itself with the short-lived Conservative administration of Prime Minister Liz Truss, who axed her finance minister Kwasi Kwarteng after bond markets plunged in response to their budget plans.
But British government borrowing costs are now above where they were during Truss’ time and are the highest among the Group of Seven rich nations.
Some investors blame the premium on British government debt on lasting damage to the country’s reputation for sound budget management, while others point to persistent inflation, longer-term budget worries and global factors.
“In Washington I will showcase Britain’s commitment to fiscal responsibility – while creating the conditions to boost productivity, attract investment and secure our place as a strong and credible partner in a stable global economy,” Reeves said in a statement to mark her arrival for the International Monetary Fund’s annual meetings.
This commitment will be put to the test next month when Reeves is expected by many economists to have to raise taxes or cut spending by up to 30 billion pounds ($40 billion) or 0.9% of national income in her annual budget to keep on track to balance day-to-day public spending with tax revenues by 2029/30.
Earlier on Tuesday, the IMF’s chief economist, Pierre-Olivier Gourinchas, said he did not see major risks in British budget policy, as it aimed to stabilise public debt as a share of national income, unlike in the United States or France.
International factors were what he emphasised when asked about the rise in British borrowing costs.
“There’s a global factor at play here, which is that we are in an environment where bond investors in general are becoming a little bit more prudent about their investment in sovereign debt,” he said.
While in Washington, Reeves will also make the case for tighter sanctions on Russia and meet U.S. businesses to encourage investment in Britain.
($1 = 0.7505 pounds)
(Reporting by David Milliken; Editing by Andrea Ricci)
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