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A defiant Rachel Reeves has defended flying to China for a business trip in the face of fears that Britain is heading for an economic crisis.
As the pound hit a new 14-month low and the cost of government borrowing rose again, Ms Reeves faced calls to cancel her trip and remain home to deal with the market turmoil.
But she insisted the visit was “in the national interest” as the government scrambles to boost economic growth.
Growing the economy was “front and centre” of the minister’s plans and would come through “careful pragmatic cooperation with international partners”, she said.
“By finding common ground on trade and investment while being candid about our differences and upholding national security … We can build a long-term economic relationship with China that works in the national interest,” she added.
The trip is controversial just weeks after it was revealed that an alleged Chinese spy had become a close confidant of the Duke of York.
But The Tories have accused Ms Reeves of being “missing in action” while the Liberal Democrats said she should announce an economic “plan B”.
The highly respected Institute for Fiscal Studies think tank also warned Ms Reeves could face “unenviable” options, blaming the economy she inherited and global factors but also “a series of government choices and mutually incompatible promises”.
Ben Zaranko, associate director at the IFS, also suggested Ms Reeves had boxed herself in with “highly undesirable” tax and spending policy that left little of what is termed “headroom”.
Former deputy governor of the Bank of England Sir John Gieve warned the chancellor could face difficult decisions ahead including potentially “severe” squeezes on public services.
“The choice she’s going to face … is can I raise borrowing – and the increase in interest rates that’s happened now, if it continues, will decrease her scope for doing that within her rules – or do I increase taxes again, or do I actually institute some very severe reductions and squeezes on public services,” he said.
It follows claims that Ms Reeves, the most powerful member of Sir Keir Starmer’s team, is facing criticism from members of her own cabinet.
One senior government figure told The Independent: “God almighty, if we don’t get some economic growth soon we are in big trouble.”
A senior minister also questioned her handling of the Budget, saying her inheritance tax changes, which enraged farmers but will raise only around £500m, “seems an unnecessary fight to pick for relatively small revenue”.
The Treasury said that making the UK better off would be “at the forefront” of the chancellor’s mind while she is out of the country, while No 10 also defended the trip saying China was forecast to be the biggest driver of growth this decade, from which Britain could benefit.
But shadow chancellor Mel Stride said Ms Reeves should “urgently” return from China, saying: “The pound is falling, borrowing costs have hit their highest in almost 30 years, and the economy is increasingly vulnerable – and yet the chancellor of the Exchequer isn’t even in the country.
“We are witnessing an economic mess of Rachel Reeves’s own making, with the impacts of her disastrous Budget continuing to bite. Yet astonishingly she made the choice to get on a jet rather than stay and try to get a grip.
“The chancellor should turn right back around, and return to the UK urgently.”
The Tories had called on Ms Reeves to abandon the China trip earlier this week to deal with soaring borrowing costs and a dramatic fall in Sterling.
Some critics have compared the situation to the economic crisis in 1976 when Labour chancellor Denis Healey was forced to cancel a trip to the US at the last minute to deal with an economic crisis in the UK.
People “shouldn’t be worried” about the state of the economy, the culture secretary has claimed, despite borrowing costs reaching their highest level since the 2008 financial crash.
While she said the current state of Britain’s finances is “obviously something we take very seriously”, she brushed off concern saying “these are global trends that have affected many countries”.
Economists have warned that Ms Reeves could be forced into further tax hikes or cuts to spending plans to meet the UK’s fiscal rules due to a potential rise in the government’s debt interest bill – the amount of money the government pays to service its debt.
The rules, which Ms Nandy stressed are non-negotiable, aim to ensure that the government’s day-to-day spending is met by its revenues and that public sector debt falls as a share of the economy.
But the IFS has warned the government’s “razor-thin margin” to meet its rules could be easily eroded if interest rates stay higher, as the rise in the cost of servicing government debts could cut into Labour’s expected “financial headroom” in a potentially worrying sign of how investors see the UK.
It comes as the chancellor seeks advice from other cabinet members on options to boost growth.
Ms Reeves is planning to make a significant speech on growth this month and has asked ministers to generate concrete measures to improve economic activity, as well as instructing them to “cease anti-growth measures”.
Culture secretary Lisa Nandy defended the China trip on Friday saying the chancellor was “absolutely right” to ignore Tory calls to abandon the trip and that her economic strategy was “on track”.
However, Ms Nandy conceded that the government’s economic plans were not “all going swimmingly” but said she was confident Ms Reeves was on course to “get the economy growing again”.
Ms Reeves will meet her counterpart He Lifeng in Beijing on Saturday to discuss trade and investment as well as raise “difficult issues” – including the country’s support for Russia’s war in Ukraine, the Treasury said.
The talks with China’s vice-premier are part of government moves to resume high-level engagement with the country.
The chancellor will be joined by Bank of England governor Andrew Bailey, chief executive of the Financial Conduct Authority Nikhil Rathi and senior representatives from some of Britain’s biggest financial services firms on the trip.
While in the country’s capital, she will visit British bike brand Brompton’s flagship store before heading to Shanghai for talks with representatives across British and Chinese businesses.
The government has said its “reset” of relations with Beijing comes with the “firm recognition” that the two countries “will not, and do not, always agree”.
