Pound calm after Starmer backs Reeves, following bond sell-off
Date: 2025-07-03T06:24:50.000Z
Title: Introduction: Bonds and sterling in spotlight after Wednesday wobble
Content: Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
All eyes are on UK bonds, and the pound, after both fell sharply yesterday amid speculation over the future of chancellor Rachel Reeves.
Wednesday was a turbulent day for the UK bond market; prices of British government debt fell heavily as investors were gripped by concerns of change at the top of the Treasury. The selloff highlights anxiety that the government's u-turn on welfare reform has blown a multi-billion pound black hole in the chancellor's budget plans.
Bonds slumped, driving up borrowing costs, after Keir Starmer failed initially to give his full backing to Reeves at prime minister's questions, with a tearful chancellor alongside him.
The pound also suffered, falling by a cent against the US dollar as it slid from $1.3745 to $1.3636, making it the worst-performing major currency in the world.
Starmer has now defended Reeves, saying her tears were due to a 'personal matter' and insisted she will remain chancellor 'for a very long time to come'.
The bond selloff may actually have reinforced Reeves's position as chancellor, highlighting that the markets would not welcome a replacement who might be less devoted to fiscal discipline.
Andrew Wishart, economist at Berenberg Bank argues that 'Investors probably saved the Chancellor', saying:
By selling sterling assets investors have probably kept UK chancellor Rachel Reeves in her post. Financial markets initially reacted little to the government failing to get approval for savings in the disability benefit budget from its own parliamentary faction. But when the Prime Minister failed to say that a visibly upset Reeves would remain in her job during Prime Ministers Questions, UK assets sold off.
The Chancellor has become synonymous with a fiscal rule of covering day-to-day spending with tax revenue.
https://t.co/UC9QmY0Lt1 UK selloff signals that fiscal rules are not just for show #reeves #fiscal #gilts #macro #ukeconomy #ukmacro pic.twitter.com/auvfYrWogD
That fiscal rule may dictate tax rises in the autumn budget, as spending cuts could be too much of a political headache, judging by the massive rebellion against the welfare bill that has created a £5bn hole in the chancellor's plans.
America's economy may take the market spotlight off Reeves this afternoon, when the latest US jobs report is released. It will show whether trade war tensions have hit hiring at US businesses.
9.30am BST: UK service sector PMI for June
10am BST: OECD Economic Survey of the European Union and Euro Area
1.30pm BST: US non farm payrolls employment report for June
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