Can Rachel Reeves prove she can make Britain grow?

The chancellor will be in China this weekend and at Davos in Switzerland later this month, trying to restore her battered reputation, writes John Rentoul – it might be the last chance she has to save her job

Rachel Reeves is embarking on a world tour. She will be in China this weekend and at Davos in Switzerland later in the month. She says: “I am on a mission to win round the world’s investors.”

She doesn’t have a moment to lose. Today long-term British interest rates rose to the highest level since 1998. This is higher than they were after Liz Truss’s mini-Budget – a point that Truss herself was keen to make.

With her usual grasp of economics, Truss seems to think this is slam-dunk evidence of the conspiracy by “the BBC, the Bank of England and MPs” against her. They “seem much less worried about gilt rates than they were in 2022”, she said. “Maybe they just didn’t like my growth agenda of tax cuts, fracking and deregulation…”

She overlooks the other conspirators against her, namely the traders in the financial markets, who she thinks are part of the left-wing establishment, and who took fright at her unfunded tax cuts. The result was that interest rates – long term and short term – rose sharply, with no one knowing how high they would go.

Today’s rise in long-term interest rates is worrying, but it is quite different: a gradual increase that is part of a trend around the world. Long-term rates are similar to those in the US, but they are higher than in the eurozone, and they do reflect the unease of the financial markets about the prospects for Britain’s public finances.

The City doesn’t think that Reeves has made a calamitous misjudgement, as Truss did, but it is gloomy about the outlook and thinks that the chancellor will have to tax, spend and borrow more – whatever she said after the Budget about “not coming back with more”.

Reeves has seen her stock falling since the election, both on the financial markets and their political equivalent. In the political market, her decision to means-test winter fuel payments is now regarded almost universally as a mistake, damaging her reputation far more than any benefit that might be derived from her willingness to take a “tough” decision.

And in both the financial and political markets, she has paid a price for the delay to the Budget and the decision to load so much of the tax rise on employers’ national insurance – as opposed to raising fuel duty in line with prices, for example, or cutting tax relief on pensions for the better-off.

It is worrying, therefore, that she has announced that the spending review won’t be until June – which is still “late spring” according to the Treasury’s calendar. This feels like postponing the conclusion of difficult negotiations with spending departments until as late as possible in the hope that something might turn up.

Meanwhile, Reeves is off around the world to sell the UK as a stable and productive place for investment opportunities. If this means touting for business with He Lifeng, the No 2 to the autocrat of Beijing and supplier of the Putin war machine in Ukraine, so be it. This is a “pragmatic” approach, she said last month.

After that, she will be off to Davos, for the World Economic Forum, the global capitalist talkfest, where her purpose is equally straightforward. “I’m going to be in Davos to tell some of the world’s biggest companies and investors that UK plc is burning bright,” she said yesterday. She has a mountain to climb, facing an avalanche of scepticism about the direction of Britain’s new government.

In the preview of her sales pitch, she emphasises that “I’ve already made progress on planning reform to get Britain building”. She says that her plans to merge local government pension funds to create “megafunds” will “unlock billions of pounds of investment for infrastructure projects and businesses of the future”.

Jonathan Reynolds, the equally “pragmatic” business secretary, will accompany her to Davos, as will Baroness Gustafsson, the minister for investment who was chief executive of an artificial intelligence startup that was sold for $5bn (£4bn) last year.

But she will not be accompanied by Angela Rayner, whose employment rights law threatens to increase labour costs, or by Ed Miliband, whose drive to decarbonise electricity threatens to increase energy costs. Those are the things that worry international investors, and some warm words about planning reform and pension megafunds are not necessarily going to be enough to offset them.

Today’s news from the gilts market is a reminder that the stakes, in China and in Davos, are high.