THE FINANCIAL markets were spooked by Rachel Reeves’ tearful scenes in the House of Commons today.
The Chancellor’s future was called into question which saw the bond markets rocked and the value of the pound tumble.
Pound falls against the dollar following Rachel Reeves’ tears in the House of Commons
Sir Keir Starmer didn’t give his full backing to the Chancellor in the Commons. Number 10 later said Rachel Reeves was “going nowhere”.Getty
AFPRachel Reeves appeared to be in tears during PMQs[/caption]
The turmoil in the City kicked off as Sir Keir Starmer refused to give her job security despite previous guarantees.
In extraordinary scenes in the Commons, under-fire Reeves was seen wiping away tears as the PM spoke.
The pound slid 1.14% to £1.358 against the US dollar following a new three-year high on Tuesday.
Sterling also fell by 0.8% to 1.155 against the euro, striking its lowest level since April.
The yield on 10-year gilts rose by 0.17 percentage points to 4.63% and 30-year gilt rose by 0.22 percentage points to 5.45%.
These were the sharpest increases since Donald Trump’s tariff plans shook up financial markets back in April.
The rise in yields means it is more expensive for the government to pay off its debts.
City traders are concerned that anyone who replaces her could mean the government’s strict fiscal rules could be thrown into doubt.
But Whitehall insiders last night said those rules are iron-clad.
The U-turn on welfare cuts over the past week have led the government staring at a £4.8 billion hole raising the prospect of tax rises or spending cuts at the Budget.
Susannah Streeter, from Hargreaves Lansdown, said: “The UK government has staked its reputation on providing stability for investors, so the scenes in parliament today, which appeared to show the Chancellor in distress, upset markets.
“The pound fell sharply against the dollar and the euro, and government borrowing costs jumped.
“The worry is that the Chancellor risks falling off her fiscal tightrope, which she has so carefully being tip toeing along, following the revolt by backbench MPs.”
“Investors are worrying that the Treasury may encounter more opposition to its plans to trim spending, in an effort to abide by its fiscal rules and keep bond markets onside.
“This isn’t a mega strop out, but it’s a warning sign lobbed into Westminster.
“The pound remains around 12 per cent higher against the dollar since the start of the year, putting today’s falls into context.”
Danni Hewson, head of financial analysis at AJ Bell, added “A government in retreat, a Chancellor in tears, and a gaping hole in the nation’s finances. It’s not been a good day for Labour in the House of Commons.
“The Prime Minister gave less than convincing backing to his Chancellor, which will fuel speculation about whether Reeves will make it to the next fiscal event, let alone the end of the parliament.
She added: “The reaction of the gilt market shows what a tightrope the government is walking with the public finances.
“Any suggestion of extra borrowing will be met with rising gilt interest costs, as we saw after Truss and Kwarteng’s mini-Budget, and that will simply serve to add to the national debt.”
All the Universal Credit and PIP changes YOU need to know
Disability benefits
Any proposed changes to Personal Independence Payments now won’t kick in until after a review has taken place.
The PIP benefits – the main disability welfare payment for those with a disability – is subject to a review by Welfare Minister Sir Stephen Timms.
The benefit payments are in place to help those affected with daily tasks such as mobility.
Payments currently start at £1,500 but rise to £9,600 which are paid out even if someone is still working.
The daily living rate comes in at £73.90 for the lower rate and £110.40 for the higher rate.
Figures show that the mobility rate is worth £29.20 and rises to £77.05 for the higher rate.
Ministers have revealed that 1,000 people per day are claiming PIP – which is the equivalent of the size of Leicester every year.
Following a major rebellion, those who are now claiming PIP be able to claim the same amount of money.
But for new claimants from November 2026, there will be a set of stricter measures set out as the government aims to reduce spending on the benefits and get people back to work.
Review by Sir Stephen Timms to delay PIP changes
Welfare Minister Stephen Timms has told MPs that any changes to PIP eligibility will come in after his review has been published.
The major concession came just 90 minutes before MPs were due to vote. The Timms review is due to report in autumn 2026.
His four-point eligibility criteria has been dropped entirely from the legislation.
Now, disability groups will work with Timms on his review.
Universal Credit
More than three million recipients of Universal Credit don’t have to find work due to their poor health.
A single person who is aged 25 or over can receive the basic level of UC which comes in at £400.14 every month.
But that can rise by a further £422.37 due to the incapacity top-up due to a disability or long-term condition – more than doubling the original payment.
The new plans mean that anyone up to the age of 22 will not be able to claim.
Existing claimants will get £97 per week until the end of the decade. But new claimants will only receive £50 a week in the next financial year.
Ministers had tried to freeze the payment for the next four years but a commitment has been made for it to go up with inflation.
Employment support package
Welfare Secretary Liz Kendall will spend an extra £300 million on employment support she insists is the biggest disability employment support package for a generation.
The cash will be spent on trying to get those claiming sickness benefits back into work. A total of £1 billion will be spent in 2028/29.
In recent days Ms Reeves has taken flak from her own colleagues over the government’s botched handling of their benefits package.
The biggest rebellion of Labour’s term in office so far last night saw 49 MPs oppose their heavily-gutted welfare reforms.
MPs have told The Sun Ms Reeves appeared “in tears” ahead of taking her place in PMQs at noon.
Putting the boot in during the exchanges, Tory leader Ms Badenoch said: “This man has forgotten that his welfare bill was there to plug a blackhole created by the Chancellor.
“Instead they’re creating new ones. She looks absolutely miserable. Labour MPs are going on the record saying the chancellor is toast.
“The reality is she’s a human shield for his incompetence. Will she really be in post for the next election?”
Published: [#item_custom_pubDate]
