Britain has “no choice at all” but to engage with China to boost economic growth, Rachel Reeves has said, as markets forecast only one interest rate cut this year.

The chancellor arrived in Beijing yesterday at a time of continuing market upheaval in which the pound fell again against the dollar, while the cost of government borrowing remained at a 27-year high.

Traders pared back their expectations for interest rate cuts, fearing that inflation would remain higher for longer. Investors had priced in two rate cuts of a quarter percentage point this year, reducing the headline rate to 4.25 per cent.

The second rate cut is now in doubt in what would be a blow to the 1.8 million households due to come off fixed-rate mortgages. Mortgage experts said it meant that it was now unlikely that twoyear fixed-rate mortgage deals would fall below 4 per cent this year.

Reeves is hoping to use her trip to China, the first by a British chancellor in more than five years, to help drive growth at a time of market concerns over stagflation — where inflation remains high but the economy stagnates.

In an article for The Times she attacked the previous government’s hostile attitude towards Beijing, arguing that it was in the UK’s national interest to engage with a country that would be “the largest driver of global growth this decade”. She said the new approach to China was a result of increasing global uncertainty. “In a world in flux, I believe there can be no greater need for this approach [to engaging with China] than on our economy,” she said.

“We cannot ignore the fact that China is the second largest economy worldwide and our fourth largest trading partner with exports supporting close to half a million jobs in the UK. China’s economy is expected to provide the largest driver of global growth this decade, from which there are significant opportunities that can benefit Britain.

“Choosing not to engage with China is therefore no choice at all.”

She accused the previous Conservative government of taking an isolationist approach to Beijing, which she claimed had put Britain at a disadvantage against European competitors. She wrote: “The previous government failed to realise the value of engagement with China, at a time when many of our like-minded allies — such as France, Germany and Australia — did so, forging closer economic ties and helping their companies expand their markets to support growth, despite having many of the same differences with China as we do. I am determined we correct this course.”

Treasury officials say Reeves sees Chinese investment — particularly in areas such as renewable energy — as critical to long-term economic plans.

Economists are warning that inflation will remain higher for longer, reducing headway for the Bank of England to cut interest rates. Robert Wood, chief UK economist at Pantheon Macroeconomics, said: “Inflation looks like it will go above 3 per cent in April and stay there until October. That makes it hard for the Bank to cut.” Hetal Mehta, head of economic research at St James’s Place, said: “The recent stubbornness of inflation and wage growth in the UK make it more difficult for the Bank to cut policy rates aggressively.”

However, George Buckley, an economist at Nomura, said the jump in bond yields would tighten financial conditions and help push down on inflation.

He said the Bank would carry out four rate cuts this year and push the base rate to 3.5 per cent by February next year.

Mortgage brokers say that any reduction in the scale of proposed Bank of England rate cuts would be a blow to 1.8 million homeowners whose fixed deals are due to end this year. Simon Gammon, of the broker Knight Frank Finance, said: “If there is only one cut to the base rate over the course of this year, it is unlikely we will see two-year fixed-rate mortgage deals falling back below 4 per cent. This will have a significant knock-on impact on borrowers.”

Andrew Montlake, of the mortgage broker Coreco, said: “In the short term we could see lenders re-price upwards.”

The government is said to be preparing billions of pounds worth of cuts to disability benefits, according to The Daily Telegraph. Downing Street and the Treasury are proposing cuts to personal independence payments (PIP), including tightening the rules around what proof is expected to get disability payments and alternatives to weekly handouts, the newspaper reported. A similar overhaul of PIP announced by the Conservative government last year triggered a fierce backlash from disability campaigners.

The annual cost of support payments for people with disabilities and health conditions is forecast to soar from £22 billion to £35 billion by 2029.