Starmer’s Firm Backing Stabilizes UK Markets After Reeves Exit Scare
Starmer’s Firm Backing Stabilizes UK Markets After Reeves Exit Scare
UK markets have rebounded sharply following Prime Minister Keir Starmer’s decisive efforts to quash speculation regarding a potential exit by Chancellor of the Exchequer Rachel Reeves. The move comes after a significant selloff triggered by investor concerns that a change in the chancellorship could lead to increased government borrowing.
Both bond and equity markets have recovered some of the losses incurred during the recent slump. Late Wednesday, Prime Minister Starmer publicly gave his full backing to Reeves in a BBC interview. The Chancellor further reinforced the government’s commitment to its fiscal rules in an unscheduled television appearance, aiming to restore confidence.
The yield on 30-year bonds, which had jumped sharply on Wednesday, fell by as much as 12 basis points to 5.30%, though it later pared some gains following a stronger-than-expected US jobs report. Analysts note that Starmer’s words have provided significant reassurance to the market.
However, underlying concerns about fiscal stability persist, hinting at a potentially volatile summer for UK markets ahead of the Autumn budget. This episode follows a period where Starmer’s Labour Party was compelled by MPs to abandon £5 billion in welfare spending cuts, complicating efforts to manage the budget deficit. Economists warn that the combination of low growth and high debt interest costs implies difficult fiscal choices, likely necessitating tax increases, and see the UK’s fiscal rules as a live risk for market participants.
The pound initially led gains among Group-of-10 currencies, while UK stocks climbed, outperforming their European counterparts. The recent market volatility has drawn parallels to the 2022 UK market crisis, which saw Prime Minister Liz Truss ousted after her mini-budget rattled investor confidence and sent borrowing costs soaring.
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