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American Focus > Blog > Economy > UK bonds fall sharply on doubts over Rachel Reeves’ future after tearful PMQs
Economy

UK bonds fall sharply on doubts over Rachel Reeves’ future after tearful PMQs

Last updated: July 2, 2025 6:01 am
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UK bonds fall sharply on doubts over Rachel Reeves’ future after tearful PMQs
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The UK government bonds faced their largest one-day sell-off since the 2022 “mini” Budget after Sir Keir Starmer declined to back a tearful Rachel Reeves during Prime Minister’s Questions.

Starmer hesitated to confirm that the chancellor would remain in her position in a heated exchange on Wednesday with Conservative leader Kemi Badenoch following Labour’s unexpected abandonment of a planned £5bn in savings in their welfare bill.

Gilts saw a significant drop as investors grew increasingly concerned about the UK’s public finances, leading to a 0.2 percentage point increase in the 10-year yield to 4.66 per cent. This marked the largest one-day rise in borrowing costs since the fallout from Liz Truss’s unfunded tax cuts three years ago. Additionally, the pound fell by 1 per cent against the dollar and 0.6 per cent against the euro.

Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management, commented, “There is a risk that a sell-off in gilts becomes self-reinforcing if market fiscal worries are left unchecked.”

During PMQs on Wednesday, Reeves, visibly upset, shed a tear after the prime minister did not offer his full support when asked about her future by Conservative leader Badenoch. Starmer, who had previously publicly endorsed Reeves, expressed his gratitude for the chancellor but the lack of unequivocal support fueled speculation about her position.

Reeves, who was accompanied by Starmer during PMQs, was escorted out of the chamber by her sister and fellow MP, Ellie Reeves, who is the chair of the Labour party. Despite rumors and speculation, a spokesperson for Reeves affirmed, “The chancellor is going nowhere. She has the prime minister’s full backing.”

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The market reaction to Reeves’ emotional display in the House of Commons was mixed. Mike Riddell, a fund manager at Fidelity International, pointed out, “The conclusion from the gilt price action this afternoon is that the market actually likes Rachel Reeves.”

Reeves’ position is closely monitored by investors as she has committed to strict fiscal rules. However, the government’s U-turn on welfare has created a £5bn gap in her plans, raising concerns about potential tax increases or spending cuts in the upcoming autumn Budget.

The ongoing political turmoil and uncertainty surrounding Reeves and the UK’s public finances continue to impact the bond market and the value of the pound. Investors are eagerly awaiting further developments and policy decisions to gauge the future direction of the economy.

TAGGED:BondsDoubtsFallFuturePMQsRachelReevessharplytearful
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