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UK chancellor Rachel Reeves has shrugged off calls for her resignation, insisting to MPs that her economic plans can deliver an “immense” prize and defending her visit to China last week.
In her first House of Commons appearance since market turmoil hit her economic plans last week, Reeves was accused by her Conservative opposite number Mel Stride of being part of a “Shakespearean tragedy”.
Stride said: “To go, or not to go, is now a question.” But Reeves, cheered on by Labour MPs, said she would in the coming weeks set out more details of a plan to revive a stagnating economy.
“If we get it right, the prize on offer to the British public is immense,” she said. Reeves claimed the recent bond market turmoil affecting UK borrowing reflected “global economic uncertainty”.
The chancellor has come under increasing pressure to set out a plan to turn around the economy.
UK borrowing costs have hit a 16-year high amid growing investor fears of stagflation, which refers to a combination of anaemic growth and persistent price pressures.
The strains in the UK market come amid a global sell-off in government bonds in recent weeks, fuelled in part by fears that US president-elect Donald Trump’s proposed tariffs will be inflationary.
The gilts market was stable following the chancellor’s initial remarks, with the 10-year yield flat on the day at 4.89 per cent and well below last week’s post-financial crisis high of 4.93 per cent.
On Tuesday, Reeves insisted that she is “absolutely committed” to sticking to her self-imposed fiscal rules, brushing off questions from MPs over whether she will be forced to cut public spending.
The recent increase in UK government borrowing costs has threatened to blow a hole in Reeves’ promise to balance day-to-day spending with tax receipts in 2029.
Reeves also said that building business ties with China was essential for growth, after Stride claimed she should have stayed in Britain to reassure the markets instead of going to Beijing “with a begging bowl”.
“Not engaging is not an option,” Reeves said, although she added that she had raised questions of human rights with the Chinese leaders and denounced “completely unfounded sanctions on British parliamentarians”.
Reeves’ statement came amid growing unrest among Labour MPs about the chancellor’s handling of the economy, with many still deeply unhappy about her decision last year to scrap winter fuel payments for 10mn pensioners.
On Monday, Number 10 took the unusual step of announcing that Prime Minister Sir Keir Starmer expected Reeves to continue in her role until the election, just hours after he refused to give such an assurance.
One newly elected Labour MP said: “Some people are looking at the polls and worrying about their seats. There’s a danger Rachel Reeves becomes a lightning rod for what has been going wrong, but I don’t think we’re at that stage yet.”
The MP said that Reeves should express some “regret” over her winter fuel decision, even if she did not reverse it.
Another influential Labour MP said: “There has long been frustration about the Treasury, but I think the risk to Rachel’s position is overdone. Keir can’t afford to lose her.”
But the MP added that there was a “lack of clarity” about how the party planned to improve living standards. “It’s all abstract, long-term. Policy risks haven’t been effectively flagged or managed.”
Starmer, a lawyer by profession, is building up the economic firepower in his team in a move seen by some Labour MPs as an attempt to provide more of a counterweight in Number 10 to the Treasury.
Michael Ellam, a Treasury veteran and until recently a senior HSBC executive, has a new role as Starmer’s principal adviser on international economic issues.
Olaf Henricson-Bell, another former Treasury official, has been appointed to run the No 10 policy unit.
Many Labour MPs believe Starmer and Reeves need to be much more effective in explaining their policies, including “educating” MPs on the fact that Britain is not the only country facing problems in the bond markets.
The pound, which has sold off with gilts this year as investors fret over the direction of the UK’s public finances, was down 0.4 per cent on the day at $1.216, taking its losses to the year to 2.9 per cent.
Additional reporting by Ian Smith