ALEX BRUMMER: The Chancellor’s trip to China is a failed mission

Rachel Reeves would have been doomed whether she went to China or not.

Canceling would have seemed like panic, especially as the Chancellor has chosen to travel with some of the city’s best.

But the reality is that, with the exception of HSBC chairman Mark Tucker, the undisputed power brokers in London’s financial markets, investment bankers Goldman Sachs, JP Morgan, Morgan Stanley and possibly Barclays, are missing.

If there are deals to be struck, despite Beijing’s suppression of Hong Kong and attack on British pharmaceutical champion AstraZeneca, it is negotiators and traders who would lead the charge.

Persuading Bank of England Governor Andrew Bailey to join might have seemed like a great idea. But what does it say about central bank independence when it becomes part of a UK government marketing exercise? You can’t imagine the Federal Reserve’s Jay Powell flirting on Air Force One with Joe Biden or Donald Trump to ensure that a trendy group, with an unreliable supply chain and favored by teenagers, decided to list its actions in New York.

The idea of ​​both the Chancellor and the Governor being on the other side of the world, while UK government bond yields rise above Truss-era levels and the pound plummets, is not the best optics.

There is a “crisis, what a crisis” element to the Government’s response to the current market turmoil.

The phrase used in Westminster and by Deputy Governor Sarah Breeden in Edinburgh is that the rise in bond yields, with the 30-year bond yield now at its highest level in 26 years, “has been orderly”.

There is certainly no repeat of the experience of October 2022, when the severity and speed of the change in bond rates led to the implosion of liability-driven investments (LDIs). The fear then was that the leverage backing these derivatives would be used, leading to a cascade of defaults that could damage the pensions of millions of retirees. That is why the Bank of England intervened. The disorder was mainly due to weak oversight by the Banking and Pensions Regulator.

Commentators such as Oxford Economics and fixed income specialists Pimco dismiss the rise in British bond yields as a global phenomenon. UK bond yields tend to move in line with those in the US.

Wall Street traders are worried that a buoyant U.S. economy, symbolized by a bigger-than-projected 256,000 increase in nonfarm payrolls in December, means U.S. interest rates will stay higher than expected for longer. Yields on U.S. bonds, with maturities between two and 10 years, rose in recent trading.

This, in turn, had an adverse impact on UK markets as the ten-year bond yield rose to 4.84 per cent, up 25.74 per cent over the past 12 months. This is a huge adverse change in the way global markets assess Britain’s prospects.

The markets may seem orderly, but the consequences for the Chancellor of this collapse in yields are nothing short of disastrous.

The October 30 budget projections are overwhelmed by the cost of servicing the national debt. The fiscal problem Reeves now finds himself in is arguably much more serious for the long-term health and stability of the economy than the LDIs. Speaking to business leaders at the CBI conference in November, Reeves said: “I am very clear: I will not come back with more loans or more taxes.”

The reality is that now it is forced to do so.

Hence leaks from Westminster suggesting the Chancellor is seeking even deeper cuts to public spending than planned. So much for plugging potholes, ending NHS queues and restoring public services. It is no wonder that welfare fixing has been postponed until 2028 and that so many pensioners, unable to claim pension credit, are shivering at home during the current cold snap.

A second plan being touted is to accelerate the expansion agenda by telling ministers to “stop anti-growth measures”.

Cutting regulation and bureaucracy is a start. However, if wealth creators and investors are squeezed out of private markets by high borrowing costs, things will be difficult.

Do Reeves and the Government really believe that a mercurial Chinese management, out of the begging bowl at Jingye-owned British Steel, is the answer?

If so, good luck.