US debt ceiling negotiations reaches tentative agreement after weeks of stalemate

President Joe Biden and the top congressional Republican Kevin McCarthy have reached a tentative deal to raise their debt ceiling and avert a default, after weeks of bitter negotiations.

The move means the US government’s $31.4 trillion (£25.3 trillion) debt ceiling will be suspended, however, the deal still needs to be approved by a divided US Congress.

The US Treasury had warned on Friday that without a deal the United States would run out of money to pay its bills on time by 5 June – a scenario that would have catastrophic repercussions for the US economy and disrupt global markets.

However, on Saturday evening the debt-ceiling deal was announced albeit with little fanfare, reflecting the difficult and fractious tone of the negotiations.

Mr McCarthy, who is Speaker in the Republican-controlled House of Representatives, tweeted: “I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people.”

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US network CBS reported there was an agreement to cap non-defence government spending at 2023 levels for one year and increase it by one per cent in 2025. It added there would be no major changes to Medicaid health insurance.

Mr Biden called the deal “an important step forward”.

In a statement, he said: “The agreement represents a compromise, which means not everyone gets what they want. That’s the responsibility of governing.

“And, this agreement is good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost.”

At a brief press conference on Saturday, Mr McCarthy said: “After weeks of negotiations, we have come to an agreement in principle. We still have a lot of work to do, but I believe this is an agreement in principle that’s worthy of the American people.

“It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach, there are no new taxes, no new government programs, there’s a lot more within the bill.”

Mr McCarthy added that he expected to finish writing the bill on Sunday, then speak to Mr Biden and have a vote on the deal on Wednesday.