British government bond turmoil rekindles truss fears amid fiscal worries
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British government bonds plunged on Wednesday after the Labour government scrapped planned welfare cuts. The U-turn, which ditched billions of pounds worth of savings to consolidate public finances, sent shockwaves through the markets and revived fears of the 2022 bond market crash that aborted Liz Truss’ brief premiership. Chancellor Rachel Reeves fought back the tears during Prime Minister’s Questions today, as she was present alongside Prime Minister Keir Starmer. The appearance, where she appeared tired and tearful, prompted speculation that her days in the Treasury were numbered. While Downing Street later attributed her distress to a “personal matter” and emphasized that Starmer continued to have full confidence in his chancellor, markets were unconvinced. The yield on the UK 10-year gilt shot up to 4.681% at one stage before Christmas, the biggest intra-day surge since the Truss era mania event. It subsequently moderated to 4.60%, but the die was cast. Yields on 30-year gilts climbed 17 basis points as longer-term fears about fiscal credibility reared their head. Reeves under fire amid doubts over Labour’s fiscal plan Chancellor Reeves is in the limelight again over the political fallout from the welfare U-turn. Her fiscal rules are in danger now of being trashed. The benefit cuts that have since been dropped were supposed to buttress those rules by saving the Treasury billions. It has made Britain’s already tight fiscal space even more constrained. Her leadership is now in question, including from within the Labour Party. There have also been reports that some Labour MPs feel the first raft of cuts was cruel and targeted the most vulnerable. But Reeves had pressured them to help meet her spending goals, a reminder of the tightrope she walks between compassion and credibility. Starmer’s refusal to say outright that he backs Reeves in Prime Minister’s Questions also…
Filed under: News - @ July 3, 2025 2:16 am