Whitehall departments are bracing for harsher spending settlements this summer as the Treasury seeks savings following a jump in its borrowing costs. Officials warned of “really difficult choices” in the upcoming spending review — with some departments warning it will be tough to withstand tighter spending given cuts in recent years. “We’re already having to think about how we can do what we’re planning with even less,” said one Home Office official. “We are concerned.
The disquiet followed a surge in UK gilt yields that has by some estimates wiped out the chancellor’s headroom against the Treasury’s self-imposed fiscal rules. Isabel Stockton, an economist at the Institute for Fiscal Studies, warned that recent increases in borrowing costs could easily erode most of the “razor-thin margin” against UK fiscal rules if they persisted.