Pound plunges and gilts soar as Rachel Reeves chaos ‘echoes of Liz Truss’ | UK | News

Speculation about Rachel Reeves‘ future as chancellor has roiled markets, with the situation even being compared to Liz Truss’s 2022 mini budget.. Today, the yield on 10-year gilts rose 16 basis points 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 series of gains earlier in the day.

News of the market movements came on the day Prime Minister Sir Keir Starmer avoided answering Conservative Party leader Kemi Badenoch’s question about whether he would repeat a previous pledge that Ms Reeves would still be in post by the next general election.

Sir Keir didn’t answer, suggesting instead that Mrs Badenoch would likely be the one to lose her position. Michael Brown, a strategist at broker Pepperstone, told Bloomberg people had taken Sir Keir’s response as a “solid sign” Ms Reeves wouldn’t 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 suggested Ms Reeves had been involved in an altercation with Commons Speaker Sir Lindsay Hoyle shortly before Prime Minister’s Questions. A spokeswoman for the Speaker refused to comment.

The Government’s abrupt welfare policy U-turn has triggered a sell-off in gilts. It sent borrowing costs to their highest levels since the global financial crisis 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 policy retreat to another, raising serious doubts about fiscal control and political authority.”

The Government’s decision 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 move on trust, consistency, and credibility. The sudden abandonment of major spending plans, without a clear alternative, signals weakness. Investors are now re-pricing UK risk accordingly.”