Market Jitters: Risks of Increased British Public Borrowing for Investment

A significant increase in British public borrowing for investment is not risk-free, a think-tank warns, as markets closely watch the new government's fiscal strategies. Finance Minister Rachel Reeves advocates for recognizing investment benefits, while analysts stress the need for justification amid rising public debt and market concerns.

A substantial rise in British public borrowing to stimulate investment is not without risks, a prominent think-tank cautioned ahead of the new government's inaugural budget, as market watchers remained vigilant on the extent and intent of additional government borrowing.

Finance Minister Rachel Reeves emphasized this week that it was time for the Treasury to shift focus from merely tallying investment costs to acknowledging the resulting benefits. The non-partisan Institute for Fiscal Studies (IFS) insisted that Reeves must justify any borrowing increase intended for public investment.

"A large increase in borrowing would not be risk-free," stated Isabel Stockton, senior research economist at IFS. "Hiding behind a technicality is not enough." The cautionary note comes in light of former Prime Minister Liz Truss' 2022 decision to bypass fiscal impact checks for her sweeping tax cuts, which spurred a bond market crisis that ultimately led to her resignation.

(With inputs from agencies.)