Pound LIVE: GBP hits three year low as Rachel Reeves’ budget bites | Personal Finance | Finance

Economists have warned Chancellor Rachel Reeves could be forced into further tax hikes or cuts to spending plans to meet UK fiscal rules after the jump in government borrowing costs.

The rise in the cost of servicing government debts could cut into Labour’s expected financial headroom in a potentially worrying sign of how investors see fiscal sustainability in the UK.

The gilt rout has been sparked by investor worries over rising government borrowing and the mounting threat of so-called stagflation, where the economy sees rising inflation combined with stalling growth.

After the autumn Budget, Ms Reeves was left with only £9.9billion of headroom to meet her revised fiscal rules. This came despite a £40billion package of tax increases to fuel higher spending.

Higher debt interest costs may mean the Chancellor would need to trim spending plans or bring in more revenue than expected to meet the fiscal rules.

The Chancellor committed last year to having only one fiscal tax-changing event a year, which is expected in the autumn, leaving many to expect that she will opt to rein in spending plans in her March fiscal statement.