UK FISCAL: Reeves said to consider cash spending freeze for non-protected depts

Bloomberg is reporting that due to a lack of fiscal headroom, non-protected departments are facing a GBP9bln real-terms cut in spending. And that they are being asked to model cuts of 3% and 5% in real terms.

• It is unclear whether we would get many details of these plans (or even explicit announcements of what would be involved in the OBR's EFO forecast update at the end of March, or whether we would have to wait until later in the "Spring" (no confirmed date) for the multi-year spending review.
• A couple of things to point out here. The OBR's growth forecasts were always seen as overoptimistic at the time they were made. Fiscal headroom was also slimmer than expected - and very vulnerable to a relatively small negative economic shock / downturn in growth. We have of course seen that downturn in growth (reducing potential revenues) and higher interest rates / steeper curves (increasing govt interest costs).
• That leads to the government needing to cut costs (as the Bloomberg story implies), raise taxes (where the govt is boxed in by its own manifesto pledges) or break fiscal rules (which Chancellor Reeves seems unwilling to do).
• Also bear in mind that the current spending plans do see some real terms cuts already baked in (due to the previous government doing this to meet fiscal rules). So in lots of ways this isn't a surprise - but gives more colour around the options being considered.
• Very little reaction in gilt futures to the release of the story (after an initial dip of a few ticks).