Rachel Reeves will be Chancellor “for the whole of this Parliament,” Downing Street has said, following questions over whether her future in Number 11 was guaranteed amid high Government borrowing costs.
Sir Keir Starmer said Ms Reeves had his “full confidence” and was doing a “fantastic job” but had twice declined earlier to say she would stay in the role until the next general election when asked by journalists earlier on Monday.
Asked why the Prime Minister had been unable to confirm whether her long-term future was secure, his official spokesman said: “You heard from the Prime Minister this morning.
“He was very explicit (that) he has full confidence in the Chancellor and he’ll be working with her in the role of Chancellor for the whole of this Parliament.”
The pound fell to a fresh 14-month low on Monday, at 1.21 dollars. It regained some ground later in trading but still finished 0.3% lower at 1.216 when London’s markets closed.
UK government bonds – also known as gilts – saw 10-year yields rise to fresh highs not seen since 2008. They were five basis points higher at 4.89% at the end of trading.
Longer-term borrowing costs were also higher, with the yield on 30-year gilts up three basis points at 5.45%, after striking its highest level for 27-years earlier on Monday
Yields are a key indicator of market confidence, moving inversely to bond prices.
They rise when investors are less willing to own the debt, meaning they will pay a lower price for the bonds.
Answering questions following a speech in London the Prime Minister stressed that the Government would meet its “fiscal rules” – including requiring day-to-day spending to be met from revenues rather than further borrowing.
But meeting the rising cost of government borrowing eats into the funding available, which could force Ms Reeves to act to either reduce spending or raise taxes to comply with her rules when the Budget watchdog gives its updated forecast in March.
Answering questions following a speech in London Sir Keir said: “We’re going to stick to the fiscal rules. That is a very important thing that we’ve said throughout.”
He said changes to planning rules, the industrial strategy and embracing artificial intelligence would fuel growth.
“That is why I’m confident in our mission for growth and I’m confident, completely confident in my team.”
But, he added: “We never pretended, nor would anybody sensibly argue, that after 14 years of failure, you can turn around our economy and our public services before Christmas.
“Before the election, I said it’s not going to be possible to do this in six months. It’s going to take time.”
Pressed again on the Chancellor’s future, he said: “Rachel Reeves is doing a fantastic job. She has my full confidence. She has the full confidence of the entire party.”
Prime ministers are often reluctant to give guarantees about the futures of individual Cabinet members as they need to have flexibility to respond to events and reshuffle their team.
But Downing Street has previously indicated that Foreign Secretary David Lammy would serve for the duration of the parliament.
And, four hours after Sir Keir’s initial comments, No 10 confirmed Ms Reeves would also remain in post until the election.
Tory leader Kemi Badenoch said Ms Reeves was “hanging on by her fingernails”.
Some traders fear there could be a deepening slump for the pound, which has been hit hard by the gilt market woes, as well as stubborn inflation, high government borrowing and concerns over incoming US president Donald Trump and his plans for tariffs on overseas trade.
Sterling’s weakness has been compounded by a stronger dollar, as markets see fewer interest rate cuts coming down the line.
Official figures due on Wednesday are set to show another rise in UK inflation, which could add to the pound’s troubles.
There are worries over a knock-on effect on mortgages and pensions from the gilt market rout.
Kathleen Brooks, research director at XTB, said worries over UK government debt levels will not go away until the Government announces measures or spending cuts to address it.
She said: “The bond market is attempting to intimidate Chancellor Rachel Reeves into forcing the UK to live within its means.
“We think the bond market will get its way.
“The Labour Government may well get the UK on a secure fiscal footing, but it may not do it in the way it had wished for when it came to power last year.
“In 2025, public sector spending is out. Rachel Reeves needs to acknowledge this before the bond market will calm down.”
The increase in the cost of servicing Government debts is seen cutting into Labour’s already slim £9.9 billion financial headroom.
The Chancellor has previously ruled out both increasing borrowing and raising taxes following the significant tax increases in October’s Budget, leaving her with few options beyond further spending cuts.
The Prime Minister said the Government would be “ruthless” in its approach to public spending.
