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Sir Keir Starmer has declared his “full confidence” in chancellor Rachel Reeves, but declined to say whether she would still be in her job at the next election.
In the wake of falling business confidence, criticism of the October Budget and market turmoil, the prime minister declined to answer questions on Monday about whether Reeves would be chancellor for the entire parliament.
“Rachel Reeves is doing a fantastic job — she has my full confidence,” he told a press conference in London. “She has the full confidence of the entire party.”
Reeves, who returned on Monday from a visit to China, is under pressure to show she has a growth strategy after the UK economy stagnated at the end of 2024 with inflation ticking up.
Prime ministers typically refuse to guarantee a job to any cabinet minister for an entire parliament, but the Conservatives seized on Starmer’s refusal to answer a question on Reeves’ longevity at the Treasury.
They noted that last November Starmer’s spokesman appeared to suggest that David Lammy would serve the entire term — expected to run to 2029 — as foreign secretary. “Yes, he’s the foreign secretary,” the spokesman said at the time.
Shadow Treasury minister Gareth Davies said: “The fact that Keir Starmer has repeatedly refused to say whether Rachel Reeves will remain as chancellor speaks volumes.”
Meanwhile, Starmer confirmed that ministers would have to be “ruthless” in containing public spending as the government struggles to stay within its own borrowing rules.
“In terms of the ruthless approach when it comes to finances and spending, yes, we will be ruthless,” Starmer said. “We’ve got clear fiscal rules, and we’re going to keep to those fiscal rules.”
Recent turmoil in the bond markets has pushed up government borrowing costs, threatening to blow a hole in Reeves’ promise to balance day-to-day spending with tax receipts in 2029.
UK borrowing costs have risen sharply since October’s Budget as a global bond sell-off combines with fears over higher borrowing and a stagnating UK economy. They increased further on Monday, with the 10-year bond yield up 0.04 percentage points to 4.87 per cent, moving towards a 16-year high set last week. Yields rise when prices fall.
Sterling, which has been caught up in the gilts sell-off, lost another 0.4 per cent on Monday against a resurgent US dollar, taking the pound to $1.215 by early afternoon trading, and its losses for the year to more than 2.8 per cent — the worst performer among major global currencies.
Dean Turner, an economist at UBS Wealth Management, said Reeves was coming under pressure to act, as waiting in the “hope the whole episode blows over” would not be viewed by investors as a “credible” response.
The chancellor is awaiting new data this week that will shed further light on the government’s efforts to strengthen the economy.
Official inflation numbers for December will be released on Wednesday, which are expected to show annual growth in the consumer prices index was 2.6 per cent last month, unchanged from the November reading.
GDP numbers for November are due out the following day, with a Reuters poll pointing to a slight uptick of 0.2 per cent.
Higher yields since the Budget will not only hamper the growth outlook, but they are likely to have added about £12bn to annual government interest costs, according to calculations from Rob Wood at Pantheon Macroeconomics.
If sustained, they would more than wipe out the entirety of the chancellor’s headroom of £9.9bn against her current budget rule, bolstering calls for the chancellor to take action as soon as March to cut public spending further.
“Reeves will have to tighten policy in the spring,” he said in a note. “But she will likely phase in cuts to spending plans gradually over five years”.