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The lack of confidence in the British economy has become contagious. From businesses it has now spread to financial markets. Last week investors dumped gilts and sold the pound, as concerns about the UK’s fiscal sustainability rose. Ten-year government bond yields are near a 16-year high. If they don’t return, chancellor Rachel Reeves’ fiscal “iron rule” — to balance the current budget in five years — will be broken. To restore credibility, the Labor government must quickly detail credible plans to boost economic growth and curb spending.

The recent sell-off in gilts was triggered by developments in the US. Higher inflation expectations in the world’s largest economy – linked to president-elect Donald Trump’s tariff agenda and strong economic data – pushed up Treasury yields, the benchmark of global debt. This has raised concerns about debt sustainability in other economies. But negative talk about Britain’s “stagflationary” growth outlook, following the tax hike in October’s Autumn Budget and the limited headroom left by Reeves against his fiscal rules, has made the UK a prime target for bond vigilantes.

What can the government do? Unless yields begin to rise out of control, knee-jerk announcements to cut costs or raise profits now may be overwhelmed by desperation, and may even push yields even higher. tall. Bonds are yielding and flowing, and today’s sales are uneventful. Comparisons to the market panic caused by former prime minister Liz Truss’ “mini” Budget in September 2022 are wide of the mark.

But doing nothing is also not an option. Trump’s capriciousness means global bond markets will remain saturated. And the message from investors is that their faith in Britain’s ability to cut costs and boost growth in this volatile environment is relatively low. Work should flesh-out it economic strategyinstead of talking vaguely about future efficiency savings and pro-growth. Businesses and investors want to know how Britain’s prospects will improve in the near term.

That means the government should double the efforts to remove barriers to hiring, investment and business expansion. Plans announced on Monday creating AI “growth zones” is a start. But businesses also want to know how reforms to the planning system can speed up construction processes across the country.

The industrial strategy – planned for the spring – is the same an opportunity to galvanize confidence by outlining a pipeline of key infrastructure projects, and ambitious plans to improve access to highly skilled talent. Reeves may outline intentions for tax reliefs and simplification ahead of the Autumn Budget, which is the main fiscal event this year. That will help stimulate business appetite.

Bond traders, however, will be looking for evidence of imminent improvements in Britain’s fiscal position, too. The chancellor is right to rule out further tax rises, which will damage confidence. But that means Labor must be prepared to make savings in high-cost, but politically sensitive, areas such as welfare benefits, the civil service and the triple-lock in pension payments. In fact, if the fiscal arithmetic does not improve, the government may change the next forecast of the Office for Budget Responsibility on March 26.

Rising bond yields are a wake-up call. The work must remain calm, and avoid hasty announcements, but it cannot continue in the slow and unpleasant way it began. It is time the government stated – with ease and detail – its strategy to deliver growth and reduce costs.