Chancellor Rachel Reeves has pledged to go “further and faster” to improve economic growth after market turbulence saw the cost of servicing UK debt rise.
The last few days have seen pressures on the public finances increase, after government borrowing costs hit their highest level for several years.
Conservative shadow chancellor Mel Stride called it “a crisis made in Downing Street”, saying business tax rises in October’s Budget had dented the UK’s economic prospects.
Reeves said she was “under no illusion” about the scale of the challenge on the economy.
It is understood she will now bring forward announcements from Labour’s promised industrial strategy within the next two weeks.
The chancellor was addressing the Commons following her return to the UK from a trip to China to drum up investment.
During the debate, she accused Conservative critics of ignoring “global volatility” behind rising borrowing costs in other countries such as the US, Germany and France.
“The economic headwinds that we face are a reminder that we should, indeed we must, go further and faster in our plan to kick-start economic growth that plunged under the last government,” she told MPs.
Reeves promised to set out new economic policies after next week’s meeting of the World Economic Forum in Davos.
The BBC has been told the industrial strategy, promised in Labour’s manifesto, is now being “fast tracked” to help bolster growth.
Sector-specific announcements, like this week’s strategy for boosting artificial intelligence, will be rolled out in the coming weeks.
Reeves is navigating a critical moment as Chancellor, with investors demanding higher returns on UK government bonds – known as gilts.
The yields – the interest rate at which the government pays back investors – on gilts are a key indicator of market confidence.
On Tuesday, the yield on 30-year gilts stood at 5.42% – close to the highest since 1998. Meanwhile the yield on debt due for repayment in 10 years was 4.87% – close to the highest since 2008.
If sustained, higher UK borrowing costs may raise annual debt interest by £10bn by 2029-30, wiping out the Chancellor’s £10bn headroom against her self-imposed fiscal rules.
And if the Treasury’s financial headroom goes, spending will be squeezed rather than taxes raised, Reeves’ aides told the BBC.
Speaking in the Commons, Stride accused the government of having “talked down the economy” and “crippled businesses” with rises in the Budget to employers’ National Insurance (NI) contributions.
“Growth has been killed stone dead, inflation is rising impacting millions, interest rates are staying higher for longer, and business confidence has fallen through the floor,” he added.
“This is a crisis made in Downing Street.”
Conservative MP Luke Evans added to the criticism, claiming higher bond yields showed “the markets do not believe her plan for growth”.
But in response, Reeves called for Evans to “get real” arguing there had been “a global volatility in markets”.
She said: “I don’t believe that it is reasonable to suggest that the reason why bond yields in the United States, in Germany and France, have risen is because of decisions made by this government.”
The chancellor spent the weekend in China seeking new investment, sparking claims she was capitulating to Beijing and dodging awkward questions in parliament.
During the debate, Reeves argued agreements reached during her visit to China would be worth £600m to the UK over the next five years.
But Stride argued the current higher level of debt interest costs would be “100 times what she says she has brought back from Beijing”.
Liberal Democrat Treasury spokesperson Daisy Cooper argued that the benefits from the new China deal was the equivalent to “just five hours of NHS spending”.
Cooper argued Reeves’s Budget “has not worked,” claiming the NI increases were “self-defeating” and a blow to struggling small businesses.
Defending the trip as a victory for UK businesses, Reeves said the government had secured new agreements on “vaccine approvals, fertiliser, whisky labelling, legal services, automotives and accountancy”.
She argued the visit let her confront China on human rights and trade concerns.
“You can’t raise tough issues if you’re not in the room,” Reeves said.
On Monday, Sir Keir Starmer said he had “full confidence” in Reeves and the government was committed to its fiscal rules.
But Conservative leader Kemi Badenoch accused him of refusing to back her after he declined at a press conference to answer specifically whether she would be in post at the next election.
Downing Street later confirmed the prime minister intended to keep Reeves as his Chancellor for the duration of this Parliament.
