UK Bond Yields Fall Pound Steady as Starmer Backs Chancellor Reeves

UK government bond markets and the pound have experienced volatility amid speculation about Chancellor Rachel Reeves's future following the Labour government's U-turns on welfare reforms that have created a significant hole in public finances. After Keir Starmer publicly backed Reeves, bond yields fell and sterling stabilized, as investors viewed her as the most market-friendly chancellor option within Labour. Despite Starmer's support, concerns remain about the government's ability to meet its fiscal rules, with spending rising substantially and the need for tough decisions like tax increases looming. Investors reacted strongly when Reeves was seen upset during parliamentary debates, with bond yields spiking to levels not seen since previous financial shocks and sterling weakening against major currencies. The government faces mounting pressure to address the fiscal gap created by withdrawing planned disability benefit cuts and winter fuel payment reductions, risking a fiscal crisis without decisive action. Analysts warn that the Labour administration's credibility with financial markets depends on adherence to fiscal discipline, which appears increasingly challenging given economic headwinds and political constraints.