Rachel Reeves stands behind her ‘non-negotiable’ Budget as she arrives in China after Tories accused her of fleeing to Beijing as a substitute of fixing flatlining financial system

Rachel Reeves has said it is in Britain’s national interest to engage with China as she reaffirmed she would not back down on the fiscal measures laid out in her October Budget.

Amid ongoing turbulence in the domestic markets, where the pound has plummeted to its lowest level in a year, the chancellor was in bullish mood as she arrived in Beijing, insisting the new rules are not up for discussion.

‘Growth is the number one mission of this government,’ said Reeves during a visit to a branch of Brompton, the British bicycle manufacturer, in the Chinese capital.

‘The fiscal rules laid out in the Budget are non-negotiable. Economic stability is the bedrock for economic growth and prosperity.’

Ms Reeves’ trip to China has drawn criticism from rival parties in the face of Britain’s stuttering economic performance. 

With government borrowing at a 27-year high after gilt yields rose to their highest level since 2008, and plans afoot to slash billions of pounds in disability benefits, fears are growing that the crisis could hit mortgage rates.

The spending review, due later this year, is expected to require departments to make efficiency savings worth 5% of their budgets, but there is concern that the chancellor may have to go even further.

The alternative would be breaching her own rules on debt and spending, a prospect that Paul Johnson, director of the Institute for Fiscal Studies, described as ‘pretty scary for the markets’.

 ‘I think it would be very difficult for [Ms Reeves] properly to abandon those rules,’ Johnson told BBC 4’s Today programme. ‘She’s really nailed her colours to the mast there, and we have seen that the markets are pretty concerned about the UK position.’ 

But as the Treasury portrayed the China visit as an attempt to build ‘common ground on trade and investment’, Ms Reeves offered a spirited defence of both her approach and the government’s efforts to bolster ties with Beijing.

‘We need to make sure we have a pragmatic and good relationship with countries around the world,’ she said in response to questions about whether forging closer ties with China posed a risk to the UK. 

‘That is in our national interest. It’s what our allies around the world do and it’s what I will be pursuing as chancellor: always acting in the national interest, while looking to help British businesses export overseas.’ 

The chancellor, who will also travel to Shanghai, later joined a UK-China economic and financial dialogue meeting in Beijing with her Chinese counterpart, the vice-premier He Lifeng. 

‘The outcomes we have agreed today represent pragmatic co-operation in action,’ Ms Reeves said afterwards. ‘They represent common ground being found on areas like financial services, trade, investment and the climate.’

She added that ‘re-engagement’ with China ‘sets us on course to deliver up to £1 billion of value for the UK economy’.

Ms Reeves said previously that ‘choosing not to engage’ with China was ‘no choice at all’, but cautioned that Britain must ‘speak candidly’ on areas where the countries diverge, ‘including on democratic values and freedoms’.

The chancellor revealed that she had raised issues of National security, Russia’s invasion of Ukraine and concerns about human rights in Hong Kong were among the issues the chancellor raised with Mr He.

‘Not every conversation will be easy,’ she said. ‘However, it is essential and in the UK’s national interest that as two major economies the UK and China commit to building a stable, pragmatic bilateral relationship.’

The Conservative party, however, has accused Ms Reeves of ‘fleeing to China’ rather than explaining how she will fix Britain’s faltering economy.

Mel Stride, the shadow chancellor, said she had ‘absented herself’ and should be ‘fixing this mess of her own making’.

‘Rachel Reeves has got her priorities badly wrong,’ he said. ‘While she’s absented herself on the far side of the world, her economic decisions here are pivoting us back towards the 1970s, with borrowing costs soaring, stagnant inflation and growth crumbling.

‘The Chancellor’s place should be fixing this mess of her own making. She should get on a jet and come straight back to the UK.’   

The Treasury insisted on Saturday that fiscal concerns would be ‘at the forefront of the chancellor’s mind’ throughout the visit.

Writing in the Times, Ms Reeves said: ‘We cannot ignore the fact that China is the second-largest economy worldwide and our fourth-largest trading partner, with exports supporting close to half a million jobs in the UK.

‘Choosing not to engage with China is therefore no choice at all. The UK must engage confidently with China in areas of trade that benefit the UK’s national interest and be equally confident in expressing our real economic and trade concerns to the Chinese, including market access and wider market-distorting practices.’

Ms Reeves added: ‘This engagement also needs to advance broader UK interests. We must speak often and candidly with China where we disagree, including on democratic values and freedoms, Hong Kong, and support for Russia’s illegal war in Ukraine.’

Yields on 10-year gilts hit the highest point since 2008 on Thursday, at 4.89%, and remained elevated throughout Friday, ending the day at 4.84%.

The yield on 30-year gilts briefly touched 5.43%, just below the peak of Thursday’s sell-off, which was the highest point since 1998. By the end of the day, it had settled at 5.41%, about three basis points higher for the day.

While the US dollar strengthened this week after data showed growth in the employment market, the pound hit a fresh 13-month low against the dollar. It was down 0.7% by the time European markets closed on Friday.

Ms Reeves, who has ruled out increases in tax and borrowing, is reputedly ready to impose more severe spending cuts on departments to balance the books if necessary. The Telegraph reported on Friday evening that reductions in the welfare budget are being considered.

The chancellor has been accompanied in the trip by Andrew Bailey, the governor of the Bank of England, as well as Nikhil Rathi, the chief executive of the Financial Conduct Authority, and senior representatives from some of Britain’s biggest financial services firms.

The government has said its ‘reset’ of relations with Beijing is accompanied by a ‘firm recognition’ that the two countries ‘will not, and do not, always agree’, and vowed to ‘challenge’ Xi Jinping’s administration where necessary.

Ms Reeves said the first UK-China economic and financial dialogue since 2019 was a ‘significant milestone’ in relations between the countries, between whom she called for more trade and investment against a ‘more complex and more challenging’ geopolitical background.

‘We must seize this opportunity to set a course for a stable and mutually beneficial relationship with one another,’ said the chancellor.

The increase in the cost of servicing government debts could cut into Labour’s expected financial headroom, in a potentially worrying sign of how investors see fiscal sustainability in the UK.