UK Bonds, Pound Selloff Deepens on Finance Minister Reeves Concerns

British government bond prices experienced their largest decline since October 2022, and the pound fell sharply after Finance Minister Rachel Reeves appeared visibly distressed and tearful during a parliamentary session. This occurred following the government's significant reversal on planned welfare cuts, which eliminated expected savings and raised concerns about the government's ability to meet its fiscal rules. Market analysts linked the bond selloff and currency drop to fears that Reeves might be replaced, potentially by someone with a more left-leaning fiscal agenda, increasing uncertainty about the UK’s financial strategy. Despite Prime Minister Keir Starmer's public support for Reeves, investors reacted negatively, with gilt yields spiking and sterling dropping over 1% against the dollar. The U-turn on welfare reforms has forced speculation that the government may need to raise taxes or cut spending elsewhere to balance the budget, while slower economic growth projections complicate fiscal planning. The situation recalls the market turmoil triggered by former Prime Minister Liz Truss's 2022 mini-budget, highlighting ongoing concerns over UK fiscal stability.