The pound has recovered against the dollar on Thursday morning rising by 0.2% to $1.3670 as Sir Keir Starmer said that Rachel Reeves will remain as the Chancellor “into the next election.”
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After Prime Minister’s Questions (PMQs) on Wednesday sterling fell 1% as Starmer refused to guarantee Reeves will keep her job.
On Wednesday the UK bond markets delivered a stark and immediate warning to the Prime Minister and the Chancellor drawing uncomfortable comparisons with the turmoil of the Liz Truss era.
The UK government’s abrupt welfare policy reversal has triggered a sell-off in gilts, sending borrowing costs to their highest levels since the global financial crisis and reigniting fears over the UK’s fiscal stability.
“The echoes of Truss in 2022 are unmistakable,” Nigel Green, CEO of deVere Group said on Wednesday. “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.”
Andrew Wishart, economist at Berenberg Bank said investors pilling on the pressure could have saved Reeves job, he said, “By selling sterling assets investors have probably kept UK chancellor Rachel Reeves in her post.
Financial markets initially reacted little to the government failing to get approval for savings in the disability benefit budget from its own parliamentary faction. But when the prime minister failed to say that a visibly upset Reeves would remain in her job during Prime Ministers Questions, UK assets sold off.
The chancellor has become synonymous with a fiscal rule of covering day-to-day spending with tax revenue.
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