Starmer Calms Markets After Reeves Scare, Reaffirms UK Fiscal Discipline

A brief bout of political turmoil in Westminster sent UK assets tumbling on Wednesday after Chancellor of the Exchequer Rachel Reeves was seen in tears during Prime Minister’s Questions. Her distress, coming a day after the government watered-down welfare cuts that would have saved about £5 billion, fuelled speculation she might be replaced and triggered the sharpest one-day jump in 10-year gilt yields since October 2022. The benchmark yield touched roughly 4.68%, while sterling slid more than 1% to $1.3589 and traders estimated some £3 billion was wiped off equity values.

Prime Minister Keir Starmer moved late Wednesday to shore up confidence, pledging Reeves would remain in post "for many years" and reiterating the administration’s commitment to its self-imposed fiscal rules. His intervention steadied markets: by Thursday morning the pound had recovered to about $1.365 and the 30-year gilt yield fell 10 basis points to 5.32%. “The market has been really reassured by Keir Starmer’s words,” said Henry Allen, macro strategist at Deutsche Bank.

Reeves re-emerged on Thursday alongside Starmer and Health Secretary Wes Streeting to unveil a 10-year National Health Service plan, insisting that adherence to fiscal rules "allows more investment" in public services. The episode underscored investor sensitivity to any sign of wavering on fiscal discipline, highlighting the delicate balance the government faces as it tries to fund policy ambitions without unsettling bond markets still mindful of the 2022 mini-budget crisis.