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Rachel Reeves may have to consider ‘very severe’ spending cuts if the recent rise in UK borrowing costs eats away at her fiscal headroom, a former Bank of England deputy governor has warned.

Sir John Gieve told Radio 4’s Today Programme that the recent bond market turmoil was not in response to UK policy changes – instead, he argues, gilt yields have simply been following the US market.

This is very different from the Truss debacle, in that it’s not a response to anything we’ve done in the UK.

“The choice she [Rachel Reeves] is going to face in the spending review [due in June] and then the budget in the autumn, is ‘can I raise borrowing?’ – and the increase in interest rates that’s happened now, if it continues, will decrease her scope for doing that within her rules.

‘Or do I increase taxes again?