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UK government bonds rallied on Thursday after Sir Keir Starmer said Rachel Reeves would be chancellor for a “very long time”, allaying investor fears over her position.
The prime minister made the promise after he failed to back a tearful Reeves in the House of Commons on Wednesday, triggering a sharp sell-off in gilts and the pound.
Investors said the prospect of Reeves’ departure had raised the spectre that the government’s fiscal rules could be ditched in favour of higher borrowing.
The yield on the 10-year gilt fell 0.07 percentage points to 4.56 per cent in early trading on Thursday, reversing some of Wednesday’s sell-off, when yields jumped 0.16 percentage points. That move was the biggest one-day jump since April.
The pound, which fell 0.8 per cent against the dollar on Wednesday, recovered to trade up 0.1 per cent at $1.3645.
In a day of high political drama, Reeves appeared to shed a tear when Starmer did not give the chancellor his full backing when asked about her future by Conservative leader Kemi Badenoch at Prime Minister’s Questions.
In a BBC interview broadcast late on Wednesday, however, Starmer said that Reeves would be “chancellor for a very long time to come” and that the two were “in lockstep”.
Starmer also insisted that the reason for Reeves being upset had “nothing to do with politics”, echoing comments from the chancellor’s spokesperson earlier on Wednesday that it was due to a “private matter”.
Reeves has become a target for rebel anger over Labour’s handling of its shambolic welfare reforms. Conservative leader Kemi Badenoch said the chancellor was being used by Starmer as “a human shield for his incompetence”.
On Tuesday, Starmer gutted his controversial welfare bill as he fended off a full-scale Labour rebellion in chaotic scenes in the House of Commons, leaving a multibillion-pound hole in UK public finances.
Asked whether Reeves would still be chancellor by the next general election, health secretary Wes Streeting told Sky News on Thursday: “Of course she will.”
