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

BRITAIN was having a grim 1970s flashback last night with a debt crisis, the threat of strikes and an under-siege Labour Chancellor.

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

The Chancellor’s tax-hiking Budget, which hammered employers with a steep national insurance rise, was blamed for the market turmoil.

And Ms Reeves was last night warned that if she goes to the Far East she risks being the next Kwasi Kwarteng — Ms Truss’s Chancellor who infamously left the UK as the economy went into meltdown in 2022.

The warning came amid the threat of industrial action, like the strikes of 1978 and 1979’s winter of discontent, with teachers threatening to walk out.

Economists also raised the prospect of a 1976-style debt crisis “nightmare” of the kind that forced Jim Callaghan’s Labour government to go cap in hand to the International Monetary Fund for a bailout.

They said the Chancellor’s wafer-thin £9.9billion headroom to keep the Government within its own borrowing rules was all but obliterated — opening the door to fresh tax rises or taking the axe to public spending.

It tees up a brutal slapdown for the Chancellor from watchdog the Office for Budget Responsibility when it gives an official update on the state of the economy on March 26.

The Treasury insisted there was “no need for an emergency intervention” as it sought to soothe concerns over Britain’s shaky financial markets.

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

The Sterling sell-off was significantly worse than every other major global currency.

The Tories hammered Ms Reeves, suggesting that she be sacked over the fall-out of her October Budget.

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

“Bond yields are higher than when Kwasi Kwarteng got sacked.

“The whole government should be fired, frankly, including Rachel Reeves, because they jacked up taxes, they crushed pensioners, they’re crushing farmers.

“They’re crushing businesses with their high taxes.

“And this is the result, because the bond market can see that our economy is being squashed by this Labour government.”

Economists said that the pound has partly suffered from the dollar’s strength — but its weakness against other currencies suggested there was a “capital flight” away from the UK.

Typically, currencies rise when government bonds fall.

But Martin Weale, a former Bank of England rate-setter, said: “We haven’t really seen the toxic combination of a sharp fall in Sterling and long-term interest rates going up since 1976.

“That led to the IMF bailout.”

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

The interest charged on 30-year government bonds yesterday continued to edge up to 5.4 per cent, their highest level since 1998.

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

The interest on them is called yield.

When the price of the bond falls, the yield increases to reward an investor for the extra risk of holding a cheaper asset.

But the yield on benchmark ten-year gilts has hit 4.86 per cent, the highest since the global financial crisis of 2008.

High street banks use ten-year gilt prices to set mortgage rates, suggesting families face expensive home loans for even longer.

Investors worry this will squeeze income further and cause a slump in spending and economic growth.

While there is a global bond market sell-off, the pain is even greater in the UK where there is a wafer-thin spending buffer.

Analysts estimate that the recent surge in the bond yields has added almost £9billion in public borrowing costs.

This will virtually wipe out Ms Reeves’ £9.9billion buffer.

­But Treasury Minister Darren Jones claimed the markets were functioning in an “orderly way”.

Adding to the 1970’s-style woe, the National Education Union said it will hold an online ballot on industrial action over government proposals for a 2.8 per cent pay rise.

But a spokesman for PM Sir Keir Starmer urged the union to “put pupils’ interests first”.