Starmer refuses to rule out spending cuts as markets hammer the UK AGAIN: PM dodges on penalties of spiking borrowing prices and sliding Pound – however claims extra AI can enhance progress and get monetary savings

Keir Starmer refused to rule out spending curbs today as the UK was battered by the markets again.

Traders pushed the government’s borrowing costs even higher this morning, while the Pound lost more ground against the dollar.

Analysts have been warning that Rachel Reeves – who is returning from a trade trip to China – will be forced to rip up her spending plans as a result of the chaos.

But after giving a speech on AI in London, Sir Keir repeatedly dodged questions on whether ministers will be forced to scale back their expectations.

The PM stressed that the government will ‘stick to the fiscal rules’ and argued that adopting AI can save large sums for the public sector and drive growth. 

Treasury Chief Secretary Darren Jones has written to colleagues laying out the urgent need for efficiencies. 

The grim signs came as businesses blame Rachel Reeves’ huge Budget tax raid for crushing economic growth.

CBI chief Rupert Soames said ‘confidence and trust’ had been ‘bruised’ by the Chancellor and firms will have to hike prices and cut jobs. 

Sterling fell 0.4 per cent to $1.215 early this morning, having hit its lowest level since November 2023 last week.

The yield on 10-year gilts – a main way the government finances itself – remains at the highest level since 2008, up four basis points at 4.89 per cent.

The interest rate on 30-year gilts also hit fresh 27-year highs, up five basis points at 5.5 per cent.

Mr Soames told BBC Radio 4’s Today programme: ‘The Chancellor told us at the time of the budget that there was an unexpected hole of about £22 billion pounds in the Government finances, and business was going to have to fill it.

‘In filling in one hole, it’s created another, and that hole is a hole in the confidence and trust that business has in the Government.

‘I think sometimes it’s not understood, the extent of the impact, particularly on companies that employ lots of people.

‘We think the national insurance increases are going to feed through into inflation, we’re going to have a lower growth rate, but also, because of things like the Employment Rights Bill coming along, you’re going to find people laying people off and less likely to employ.’

He also took aim at the Employment Rights Bill, which will give workers rights to claim sick leave, parental leave and unfair dismissal from day one.

Mr Soames said of the business response: ‘I think not only will they not employ, I think they will let people go.

‘I think there could be quite an ugly rush before some of these things come into force.

‘Nobody wants this, but the things like the probation periods in the Employment Rights Bill, we don’t want that to become an adventure playground for employment rights lawyers.’

The letter from Mr Jones, sent on December 12 and seen by the Telegraph, says the spending review due to finish in June must be tough.

Mr Jones wrote: ‘Growth is the only way that we can deliver better outcomes in public services, without raising taxes on working people and is our primary mission for this Parliament.

‘Spending Review 2025 cannot be a business-as-usual spending review. Building on our missions, the Plan for Change set out ambitious milestones that must be delivered within the challenging fiscal context we inherited. Success will require ruthless prioritisation.’

Ms Reeves is pledging a new drive to tackle waste across the public sector, which will leave ‘no stone unturned’.

Officials will work with the private sector to ’embrace ideas, expertise and innovation’ in a bid to cut on unnecessary spending.

Panels made up of experts from outside Government are set to be brought into every department in order to bring perspective on how taxpayer’s money is being spent and how to best use it.

That mirrors efforts across the pond where Elon Musk and Vivek Ramaswamy were tasked in the new Trump administration to look at cutting regulations, spending, and headcounts within government as part of the Department of Government Efficiency, or ‘Doge’.

Cabinet Office minister Pat McFadden insisted this morning that Ms Reeves had been right to go to China despite the crisis at home. 

He told BBC Breakfast: ‘I think the people saying she shouldn’t have gone are wrong and making a bad mistake.

‘It is absolutely right for the Chancellor of the Exchequer, for the chief economic voice in the United Kingdom, to go and to beat the drum for British business and for investment in the United Kingdom.

‘It was in the national interest that the Chancellor went to China, and that is why it is absolutely right that she went.’