Rachel Reeves faces tax increases, spending cuts amid fiscal crisis

Rachel Reeves, the UK Chancellor, faces increasing pressure to either cut spending or raise taxes due to a significant shortfall in government finances. The Office for Budget Responsibility reported that the previously available £9.9 billion fiscal headroom has been wiped out by low growth, rising borrowing costs, and higher-than-expected interest rates. Economists warn that she risks breaching her established fiscal rules, with JP Morgan predicting a substantial 'fiscal hole' ahead. While Reeves is expected to resist calls for an emergency budget, suggestions for extending the freeze on income tax bands could emerge as a stealth tax solution in the autumn. The Bank of England is projected to lower interest rates slightly, yet inflation concerns dampen expectations for further cuts. As the government attempts to implement growth-driving measures, the long-term impacts remain uncertain.