Speculation about Rachel Reeves‘ future as chancellor has roiled markets, with the scenario even being in contrast to Liz Truss’s 2022 mini finances.. Today, the yield on 10-year gilts rose 16 foundation factors to 4.61% and sterling slid 0.8% to $1.3643 as doubts about Ms Reeves’ remaining at No.11 mounted. London’s FTSE 100 index at 1.45pm on Wednesday was down 40.30 at 8745.03 after making a sequence of beneficial properties earlier in the day.
News of the market actions came on the day Prime Minister Sir Keir Starmer prevented answering Conservative Party chief Kemi Badenoch’s query about whether he would repeat a earlier pledge that Ms Reeves would still be in post by the next common election.
Sir Keir did not reply, suggesting instead that Mrs Badenoch would possible be the one to lose her place. Michael Brown, a strategist at broker Pepperstone, advised Bloomberg people had taken Sir Keir’s response as a “solid sign” Ms Reeves would not be in the job much longer. He said: “The calculus seems to be that Reeves is soon on her way, and that her replacement—whatever that is—will loosen the fiscal rules significantly.”
Despite the Prime Minister failing to give his Chancellor a public show of support, Downing Street said later on Wednesday (July 2) that Ms Reeves was “going nowhere”.
The Chancellor’s allies said she was dealing with a personal matter while No.10 said she had Sir Keir’s “full backing”.
Reports advised Ms Reeves had been concerned in an altercation with Commons Speaker Sir Lindsay Hoyle shortly before Prime Minister’s Questions. A spokeswoman for the Speaker refused to remark.
The Government’s abrupt welfare coverage U-turn has triggered a sell-off in gilts. It despatched borrowing prices to their highest ranges since the international financial disaster in 2008 and reignited fears about Britain’s fiscal stability.
Nigel Green, CEO of deVere Group, said: “The echoes of (former prime minister Liz) Truss in 2022 are unmistakable.
“Back then, it was a reckless mini-budget that shattered market confidence. This time, it’s a Government lurching from one coverage retreat to another, raising severe doubts about fiscal control and political authority.”
The Government’s resolution to U-turn on plans for £5billion worth of welfare reforms to fend off a backbench rebellion has left a £6bn shortfall in the country’s public finances.
It has left investors questioning whether Sir Keir’s administration can deliver the tough decisions needed to keep the UK’s fiscal trajectory on course.
Investors appear especially concerned that the Government’s caving in to backbench pressure could lead to more indecision over fiscal policy. It comes at a precarious time for Britain’s economy, amid sluggish growth and uncertainty over interest rates.
Mr Green said: “Bond markets transfer on trust, consistency, and credibility. The sudden abandonment of main spending plans, without a clear different, indicators weak point. Investors are now re-pricing UK risk accordingly.”
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