While adding to the debt pile risks increasing that burden, the Chancellor believes that investment in Britain’s ailing infrastructure is vital to boosting the country’s long-term growth potential.
While rewriting the debt rules would allow her to spend more on investment, George Lagarias, chief economist at Forvis Mazars, warned the Chancellor could find herself at the “mercy of the bond markets” if she implements her plans too quickly.
Sanjay Raja, chief UK economist at Deutsche Bank, called for prudence “given bond volatility, and uncertainty rising among investors”.
He said: “It would make more sense to slowly ramp up unfunded investment with productive projects geared towards boosting productivity and potential growth.
“And the Government should communicate a clear and transparent plan rather than doing it in one fell swoop on Oct 30.
“Investment is a good thing. It just needs to be transparent, tractable and accountable within a responsible fiscal framework.”
Ms Reeves has sought to allay investor concerns about a debt-fuelled investment drive.
“It’s about making prudent, sensible investments in the long term and we need guardrails around that,” she told the Financial Times.
However, Mr Nabarro said clear risks remained. He said a buyers’ strike in the gilt market was “a conceivable risk” if “the rules are changed and there is a material risk [that] Rachel Reeves could invest something like £50bn next year.”
Mr Nabarro said it was vital that the Chancellor “put some guardrails” around any extra spending room she had in the Budget and make it “absolutely clear” that the money would be spent slowly and “will be very carefully policed.”
Concerns about the state of public finances, as well as shifting market expectations for interest rates, have led to a rise in UK borrowing costs in recent weeks.
Government borrowing costs are already almost double that of Germany’s. The UK now pays 4.2pc to borrow for a decade, up from the Covid-era low of less than 0.1pc, and the typical rate of between 1pc and 2pc in the years before the pandemic.
The gap between UK and German borrowing costs in financial markets this week rose to its highest in more than a year.