Tumbling pound, threat of strike action and growing debt crisis… bungling Labour are sending us back to the 70s

Britain was last night reliving dark memories of the 1970s, with a debt crisis, the threat of strikes and a Labor chancellor under siege.

Rachel Reeves is facing enormous pressure to abandon a controversial trip to China this weekend as borrowing costs soar to levels beyond the worst of the doomed Liz Truss era.

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The Chancellor's tax hike budget, which hit employers with a sharp rise in National Insurance, has been blamed for the market turmoil.

Ms Reeves was warned last night that if she went to the Far East she risked becoming the next Kwasi Kwarteng – an adviser to Ms Truss who infamously left the UK as the economy entered collapse in 2022.

This warning came amid the threat of industrial action, such as the strikes of 1978 and the Winter of Discontent of 1979, when teachers threatened to walk out.

Economists have also raised the possibility of a “nightmare” 1976-style debt crisis, the kind that forced Jim Callaghan's Labor government to turn to the International Monetary Fund for a bailout.

They said the Chancellor's £9.9bn leeway to keep the government within its borrowing rules had been all but wiped out – opening the door to new tax rises or public spending cuts.

It is a brutal slap in the face for the Chancellor from the Office for Budget Responsibility when he gives an official update on the state of the economy on 26 March.

The Treasury insisted that “there is no need for emergency intervention” as it sought to allay concerns about shaky British financial markets.

But the pound fell yesterday to its lowest level in 14 months, falling to $1.23 against the dollar.

The sell-off in sterling was far worse than any other major global currency.

The Conservatives attacked Ms Reeves, suggesting she be sacked over the fallout from her October budget.

Shadow Home Secretary Chris Philp told our Never Mind the Ballots programme: “I think the Chancellor should stay in the UK to fix the mess her Budget has created.

“Bond yields are higher than they were when Kwasi Kwarteng was sacked.

“The whole government should be sacked, frankly, including Rachel Reeves, because they have increased taxes, crushed pensioners, crushed farmers.

“They are crushing businesses with their high taxes.

“And this is the result, because the bond market can see our economy being crushed by this Labor government.”

Economists said the pound had suffered partly from the strength of the dollar, but its weakness against other currencies suggested there was “capital flight” away from the UK.

Typically, currencies rise when government bonds fall.

But Martin Weale, a former interest rate setter at the Bank of England, said: “We have not really seen the toxic combination of a sharp decline in the value of sterling and rising long-term interest rates since 1976.”

“This led to the IMF bailout.”

Weil, now professor of economics at King's College London, added: “So far we are not in that position, but this must be one of the Chancellor's nightmares.”

The interest charged on 30-year government bonds continued to rise yesterday to 5.4 percent, its highest level since 1998.

The government issues bonds, known as bonds, when it needs to raise money.

The interest on them is called the return.

When the price of a bond falls, the yield increases to reward the investor for the additional risk of holding cheaper assets.

But the yield on ten-year government bonds reached 4.86 percent, the highest level since the global financial crisis in 2008.

Big banks use ten-year government bond rates to set mortgage rates, suggesting that households are facing more expensive home loans for longer.

Investors are concerned that this will put further pressure on income and cause a decline in spending and economic growth.

While there is a sell-off in the global bond market, the pain is greater in the UK, where there is very little spending reserve.

Analysts estimate that the recent rise in bond yields has added nearly £9 billion to public borrowing costs.

This would effectively wipe out Ms Reeves' £9.9bn reserve.

But Treasurer Darren Jones claimed markets were operating in an “orderly manner”.

Adding to the 1970s-style agony, the National Education Union said it would hold an online industrial action poll on government proposals for a 2.8 per cent pay rise.

But Prime Minister Sir Keir Starmer's spokesman urged the union to “put the interests of pupils first”.

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