The pound has fallen to its lowest level in over a year, while UK borrowing costs hit their highest for 16 years. Economists have warned that the rising costs could lead to further tax increases or spending cuts as the government tries to meet its self-imposed rule not to borrow to fund day-to-day spending.

Sir John Gieve, former Deputy Governor at the Bank of England, said the Chancellor may have to hike taxes or impose some ‘very severe reductions and squeezes’ on public services

Economists have warned the rise could ultimately mean further tax rises or cuts to spending plans.