Unlock Editor’s Digest for free
Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.
Rachel Reeves will remain chancellor of the United Kingdom at least until the next general election, Downing Street said on Monday, as Sir Keir Starmer sought to end speculation that his position could be under threat.
The statement comes after the Prime Minister told a press conference that he had “full confidence” in Reeves, but twice refused to answer questions about whether she would retain her position until the next elections, expected in 2029.
“He was very explicit that he had full confidence in the chancellor and would work with her in the role of chancellor for the duration of this parliament,” Starmer’s spokesperson said.
Reeves, who returned from a visit to China on Monday, is under pressure to show she has a growth strategy after the British economy stagnated at the end of 2024 with an increase in inflation. Borrowing costs have also risen sharply since the October budget, following a global bond sell-off.
Government bond yields rose on Monday, with the yield on the 10-year bond rising 0.03 percentage points to 4.87 percent, heading toward a 16-year high set last week. Yields increase when prices fall.
The British pound, which was caught up by the Gilts sell-off, lost another 0.3 percent on Monday against the resurgent US dollar, taking the pound to $1.216 by late afternoon, and its losses for ‘year at nearly 2.8 percent – the worst performer among the world’s major currencies.
Reeves is expected to make a statement to MPs on Tuesday about his visit to China, but will also take the opportunity to give his first parliamentary defense of his economic policy since the Christmas break.
She was heavily criticized by the opposition Conservative Party, which took advantage of Starmer’s initial reluctance to confirm that Reeves would serve as chancellor for the remainder of the legislature.
Conservative Treasury spokesman Gareth Davies said: “The fact that Keir Starmer has repeatedly refused to say whether Rachel Reeves will remain chancellor speaks volumes. »
British prime ministers generally refuse to guarantee a minister’s position for an entire parliament, knowing that they will then be asked to give such public assurances to every member of their team.
But the Conservatives noted that last November, Starmer’s spokesman appeared to suggest that David Lammy would serve out his full term – which is expected to run until 2029 – as foreign secretary.
Downing Street confirmed on Monday that Lammy would remain in post until the next general election, but then refused to give such guarantees to any other cabinet members, including Home Secretary Yvette Cooper.
Starmer’s spokesman said: “I’m not going to review every member of the cabinet. He added that Starmer believed he had “the best possible people” in his best team.
Meanwhile, Starmer confirmed that ministers would have to be “ruthless” in reining in public spending as the government struggles to meet its own borrowing rules.
“In terms of a ruthless approach to finance and spending, yes, we will be ruthless,” Starmer said. “We have clear budgetary rules and we will respect them.”
The UK government’s recent rise in borrowing costs has threatened to undermine Reeves’ promise to balance day-to-day spending with tax revenues in 2029.
Dean Turner, an economist at UBS Wealth Management, said Reeves was under pressure to act because waiting in “the hope that the whole episode will end” would not be seen by investors as a “credible” response.
The Chancellor is expecting new data this week which will further inform the Government’s efforts to strengthen the economy.
Official inflation figures for December will be released on Wednesday, and are expected to show that annual growth in the consumer price index was 2.6 percent last month, unchanged from November.
November GDP figures are due to be released the following day, with a Reuters poll showing a slight rise of 0.2 percent.
Higher yields since the Budget will not only hurt growth prospects, but are likely to have added around £12 billion to the government’s annual interest costs, according to calculations by Rob Wood of Pantheon Macronomics.
If upheld, they would largely wipe out the Chancellor’s £9.9 billion headroom from her current fiscal rule, reinforcing calls for the Chancellor to act as early as March to cut spending further public.
“Reeves will need to tighten his policy in the spring,” he said in a note. “But it will likely gradually scale back its spending plans over five years.”
