Brexit has pushed up inflation, claims Reeves
Last updated 28 October 2025 1:16pm GMT
Key moments
Brexit was ‘rejection of open borders’ says Reeves The Chancellor said Brexit ‘was a rejection of open borders’ and said the response to rebuilding trade ties with the EU ‘has been very good’ British trade deals with Qatar and Turkey ‘almost done’ Finance ministers said they were close to sealing trade deals with Britain Reeves: Number one priority is growing the economy Rachel Reeves said her ‘number one priority is growing the economy’ as she spoke in Saudi Arabia Brexit ‘bad for trade’, says minister Chris Bryant, the trade minister, said leaving the EU had ‘of course’ damaged Britain’s economic relationship with the bloc
Rachel Reeves blamed Brexit for pushing up inflation as she addressed an investment summit in Saudi Arabia.
The Chancellor said that inflation was too high in Britain and one of the reasons was “too much cost associated with trade”.
Inflation remained at 3.8pc for the third month in a row in September, nearly double the Bank of England’s target.
Ms Reeves said Britain’s inflation problem had been partially addressed with the fresh trade agreement made with the EU in May.
“There are obviously huge benefits from rebuilding some of those relations, but also inflation is too high,” she told the Future Investment Initiative in Riyadh.
“One of the reasons for that is that there’s too much cost associated with trade with our nearest neighbours and trading partners.”
She said that Brexit “was a rejection of open borders” and that the Government had been worried that “reopening that can of worms” of the relationship with the EU could be “quite dangerous”.
However, she insisted the response to rebuilding trade ties with the EU “has been very good”.
Separately, Chris Bryant, the trade minister, said Brexit has been “bad for trade” with the European Union as he attended an event at the headquarters of the World Trade Organisation (WTO) in Geneva.
Elevated levels of inflation increase the cost of servicing Britain’s £2.9 trillion of national debt, with interest payments on large portions of the borrowings tied to inflation.
The Chancellor has faced criticism for appearing at the event after Labour criticised the Conservatives for doing business with the “murderous” regime.
She is leading a UK delegation to the Gulf in search for economic growth, with less than a month to go before her autumn Budget.
She spoke amid reports that the downgrades by the Office for Budget Responsibility (OBR) will deliver a £21bn blow to the public finances.
The budget watchdog is expected to cut its forecast for productivity growth by about 0.3 percentage points, according to the Financial Times.
The Institute for Fiscal Studies (IFS) has warned that every 0.1 percentage point hit to productivity will deliver a £7bn blow to Britain’s public balance sheet.
Indices UK World Forex
| Name | Last | + / – % |
|---|---|---|
| FTSE 100 | 9698.01 | 0.46% |
| FTSE 250 | 22479.63 | -0.14% |
| All Share | 5239.25 | 0.38% |
| SmallCap | 7412.8 | -0.09% |
| AIM | 769.29 | -0.40% |
Labour ‘cannot see the impact of their choices’
Rachel Reeves is “stuck blaming Brexit” for the impact of he choices, Telegraph readers have said.
While others acknowledged leaving the EU has played a role, readers asked what has “suddenly changed” for the Chancellor to be making comments now.
Here is a selection of views from the comments section below.
Brexit ‘bad for trade’, says minister
Brexit has been “bad for trade” with the European Union, a minister has said.
Chris Bryant, the trade minister, said leaving the EU had “of course” damaged Britain’s economic relationship with the bloc.
He was speaking at the Geneva headquarters of the World Trade Organisation (WTO), which he said faced an “existential moment” at its ministerial meeting next year.
Mr Bryant warned there is risk the body would fade into insignificance and called for an “open and honest conversation” about its consensus rule.
The head of the WTO today called for reforms of the 30-year-old institution, highlighting the consensus rule that requires unanimous agreement among members to secure global trade deals.
“We need to reform the system, we cannot be complacent,” director-general Ngozi Okonjo-Iweala told the Future Investment Initiative conference in Riyadh.
Mr Bryant said: “We are in the business of wanting to make sure that the WTO works, but there is a danger that it will dwindle into insignificance over the coming years.”
FTSE 100 hits record high
The FTSE 100 hit record high amid rising bets on interest rate cuts and a boost from HSBC.
The blue-chip stock index rose 0.3pc to hit an all-time high of 9,677.87 points as traders bet that a downgrade to the UK’s productivity outlook would clear the way for lower borrowing costs.
Meanwhile, HSBC rose 3.1pc after the second most-valuable company on the FTSE 100 raused its profit guidance despite a $1.1bn blow to its finances linked to the Bernie Madoff fraud scandal.
However, the UK’s mid-cap FTSE 250 index was down 0.4pc.
UK retailers cut their prices in October, new data show, helped by the biggest drop for food in almost five years, boosting the chances of a Bank of England rate cut.
Among other stocks, Airtel Africa rose 7.8pc to a record high after the telecoms company reported a rise in half-year revenue and declared an interim dividend.
Spirax Group rose 3.5pc after UBS upgraded the valve maker’s stock to “buy” from “neutral” while raising its target price to £105 from £75.
Riyadh conference attended by titans of global finance
Rachel Reeves’ appearance at the Future Investment Initiative in Riyadh comes as Saudi Arabia’s Crown Prince Mohammed Bin Salman is preparing for a meeting with Donald Trump next month.
The Crown Prince, who is widely referred to as MBS, will visit Trump in the White House on 18th November, having last visited the US seven years ago, just weeks before the killing of Jamal Khashoggi in 2018.
MBS’s planned visit comes as Saudi Arabia is spending hundreds of billions to diversify its economy away from oil, including by building a futuristic new city on the Red Sea called Neom.
The Kingdom of Saudi Arabia is seeking to draw in investment from abroad with the Riyadh conference acting as a way for it to tout the investment opportunities on offer.
Alongside Ms Reeves, the conference in Riyadh was attended by titans of global finance including Goldman Sachs chief David Solomon and JPMorgan boss Jamie Dimon and hedge fund manager Bill Ackman.
Gold prices slump as Trump makes progress in China trade talks
Gold prices slumped another 2pc on Tuesday morning in a continuation of the steep sell-off sparked by continued progress in the trade talks between Donald Trump and Xi Jinping.
Bullion fell to about $3,900 (£2,900) an ounce on Tuesday after dropping by 3.2% in the previous session as negotiators from Washington and Beijing said they had struck agreed on “a very positive” framework for a deal.
The news contributed to the slump in gold prices from record highs of more than $4,000 an ounce last week, following a years’ long rally that started in 2022.
The rally saw gold prices hit $4,380 an ounce last Monday as investors sought out safe havens to shield their investments from the volatile economy seen over the past few years.
Reeves ‘unlucky’ to face productivity downgrade
Rachel Reeves has been “unlucky” to face an “overdue” productivity downgrade from the Office for Budget Responsibility (OBR) in the upcoming Budget, an economist has said.
The budget watchdog has reportedly handed the Chancellor a 0.3 percentage point downgrade to its productivity forecasts, blowing a £21bn hole in the public finances by IFS calculations.
It comes after years of optimistic forecasts on productivity that have not come to pass.
Julian Jessop of the Institute of Economic Affairs think thank said the reports were “(presumably) coming from Treasury/No10, not the OBR, so may well be some ‘expectations management’ here”.
He said: “Reeves is unlucky that the OBR has decided to make this (overdue?) change now, but it’s also telling that it doesn’t think the prospects have improved under Labour.”
Government borrowing costs fall amid bets on rate cuts
The cost of government borrowing has fallen as traders increased bets on interest rate cuts by the Bank of England.
The yield on 10-year UK gilts – a benchmark for the cost of servicing the national debt – fell two basis points to a near 10-month low of 4.38pc.
Money markets indicate there is a 69pc chance of another rate cut this year, up from a 63pc probability on Monday.
It follows a report that Rachel Reeves will face a 0.3 percentage point downgrade to productivity forecasts in the Budget, forcing her to raise taxes or cut public spending.
Traders bet that this has raised the chances of the Bank of England lowering rates to support the economy.
‘Huge benefits’ to relationship with EU, says Reeves
Rachel Reeves has concluded her session at the conference in Riyadh, where she insisted the UK can reap “huge benefits” from rebuilding relations with the European Union.
She said: “If you look at the UK today, when we did that deal back in May with the European Union, to take down some of those barriers and indeed to introduce an ambitious youth mobility scheme, there was public support for that.
“There are obviously huge benefits from rebuilding some of those relations, but also inflation is too high.
“One of the reasons for that is that there’s too much cost associated with trade with our nearest neighbours and trading partners.”
British trade deals with Qatar and Turkey ‘almost done’, say finance ministers
The finance ministers of Qatar and Turkey both said they were close to sealing new trade deals with Britain as they appeared alongside Rachel Reeves.
Ali bin Ahmed Al Kuwari, the Qatari finance minister, said a deal between the six-member Gulf Cooperation Council (GCC) and the UK was “almost done”
The Chancellor leaned over to Mr Al Kuwari and insisted: “Yes we are getting it done, aren’t we.”
The GCC is comprised of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Mehmet Şimşek, Turkey’s finance minister, also said an agreement with Britain was “almost done”.
He said: “We are more optimistic that our deal with the UK will be concluded soon. The EU is more complicated.”
We are ripping up planning rules, insists Reeves
Rachel Reeves rejected suggestions that Britain imposed excessive regulations on businesses, presenting a barrier to growth.
“By the end of next month we will have passed biggest piece of legislation I expect of this whole parliamentary term on planning and infrastructure and that is all about ripping up unnecessary planning and regulatory rules to make it easier to build data centres, train lines and nuclear power stations,” she said.
“Sir Keir Starmer has made a commitment to reduce the burden of regulation on businesses by 25pc during the course of this parliament.
“We’ve already started that in financial services by taking out regulators, we have changed leadership team in Competition and Markets Authority to make it more pro business.
“And so, we’re differentiating ourselves within Europe as being a country that is ripping up the planning rules, tearing up unnecessary regulations to ensure you can actually get things done in Britain.
“That’s increasingly the case and I think investors, whether that’s sovereign wealth funds and private equity can see this government is moving forward at pace with measures to grow the economy.”
Reeves: AI is ‘positive growth engine for UK’
Rachel Reevess said she sees “AI in itself as a positive growth engine for the UK”.
She said AI “underpins everything we do” and was being integrated into the running of government services.
The Chancellor said Britain was “using technology and AI to improve productivity in government as well”.
Brexit was ‘rejection of open borders’ says Reeves
Rachel Reeves said Brexit “was a rejection of open borders” and said the response to rebuilding trade ties with the EU “has been very good”.
The Chancellor told the Saudi conference that the Government had been worried that “reopening that can of worms” of the relationship with the EU could be “quite dangerous”.
“Public consent is a lot higher when people see their living standards improve,” she told the Future Investment Initiative in Riyadh.
She said that inflation was too high in Britain and one of the reasons was “too much cost associated with trade”, which had been partially addressed with the fresh trade agreement made with the EU in May.
She said it was important “in the insecure world” of today to “build up our domestic capabilities” but she said this was “not about building walls”.
Reeves ‘bitten by productivity hedgehog’
A strange turn of phrase from Ben Zaranko of the Institute for Fiscal Studies but you get the idea if you look at the picture.
The graph below shows how the Office for Budget Responsibility has consistently over-estimated the productivity outlook, creating this hedgehog-like chart.
So the implication is the expected 0.3 percentage point downgrade to the productivity outlook was long overdue – and it gives the Chancellor a potential £21bn headache in the Budget.
Reeves: Number one priority is growing the economy
Rachel Reeves said her “number one priority is growing the economy” as she spoke in Saudi Arabia.
She said there were several uncertainties, such as higher tariffs, which was why the main focus was on securing trade deals, such as the ones with the US and India.
Good morning
Thanks for joining me. Rachel Reeves is addressing a forum on economic growth in Saudi Arabia. Here is what you need to know.
5 things to start your day
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- City trader sues UBS for $400m after overturning rate-rigging conviction | Tom Hayes accuses the bank of making him a ‘hand-picked scapegoat’
- Wall Street raider launches £5bn takeover of City fund manager | Janus Henderson says a ‘special committee’ will evaluate Nelson Peltz’s acquisition offer
- Eir Nolsøe: Britain’s economy may be turning a corner. Another tax raid would send it backwards | If not careful, Reeves’s Budget could crush the silently growing optimism in UK productivity
What happened overnight
UK stocks were flat and Asian markets fell as traders digested Donald Trump’s visit to Japan ahead of his high-stakes talks with Chinese President Xi Jinping later this week.
The US president is due to meet Xi on Thursday in South Korea. In Tokyo today, Mr Trump met new Japanese prime minister Sanae Takaichi, declaring that the United States was “an ally at the strongest level”.
The White House announced that the countries had signed an agreement on the supply of rare earths, a critical sector dominated by China that has deepened the antipathy between Washington and Beijing.
Ms Takaichi also said Japan was facing an “unprecedented severe security environment”, in a nod to the geopolitical tensions underlying Trump’s Asia tour.
Japan’s Nikkei 225 index finished the day down 0.6pc, after surging above 50,000 points on Monday for the first time.
Shares in Hong Kong, Shanghai, Taipei and Sydney also slid, while Seoul rallied from an over one-percent drop to close down 0.8pc.
The FTSE 100 was little changed while European stock indexes were largely down in early trading.
On Wall Street on Monday, the Dow Jones Industrial Average rose 0.7pc, to 47,544.59, the S&P 500 rose 1.2pc, to 6,875.16, and the Nasdaq rose 1.9pc, to 23,637.46, as each of the three main indexes registered record closing levels.
In the bond market, the yield on 10-year US Treasury notes, which influence interest rates around the world, fell to 3.979pc, from 4.029pc late on Sunday.
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