Rachel Reeves will move to reassure turbulent markets amid high government borrowing costs as she faces a grilling from MPs on Tuesday.
Chancellor Under Pressure Amid UK Bond Market Volatility
The UK chancellor will answer questions in the Commons for the first time since her return from a trip to China, which was criticised by political opponents for coinciding with a week of volatility for the pound and soaring yields on UK bonds.
Speculation about her position mounted on Monday after Prime Minister Keir Starmer said he had confidence in her but declined to confirm she would stay in Number 11 until the next general election when asked by journalists a press conference in east London.
Downing Street later clarified Reeves would remain in her role “for the whole of this Parliament”.
Government Borrowing Costs Surge as Reeves Returns from China
The chancellor returned from her trip to China on Monday as concerns swirled that the government is in danger of failing to meet its own fiscal rules and will need to take action to remain on track.
The Tories accused her of having “fled” the country amid market turmoil, while the Liberal Democrats called on her to remain in the UK to announce a “plan B” to address the turbulence.
But Reeves defended the trip, on which she held discussions on trade and investment, saying agreements reached in Beijing would be worth £600 million to the UK over the next five years.
Security minister Dan Jarvis defended the chancellor as he faced broadcasters on Tuesday’s morning media round, saying she was doing a “good job” in difficult circumstances inherited by the previous government.
“The chancellor has been in China over the course of the weekend, I think that was the right thing for her to do and she’s getting on with doing a difficult job of delivering economic growth for the country,” he told Sky News.
“These are difficult economic headwinds that we’re dealing with at the moment, but I think she’s doing a good job and I think the prime minister thinks that as well.”
Pressure Mounts on Chancellor to Address Fiscal Challenges
The pound regained its footing on Tuesday, after hitting fresh 14-month lows on Monday, as UK government bonds recovered some lost ground after a recent heavy sell-off.
Sterling held firm at $1.22 in morning trading, having sunk to its lowest level since November 2023 in recent days.
Government borrowing costs showed signs of stabilising, with yields on 10-year UK government bonds—also known as gilts—down three basis points at 4.86.
The yield on 30-year gilts struck its highest level for 27 years on Monday, and 10-year yields rose to fresh highs not seen since 2008.
Yields are a key indicator of market confidence, moving inversely to bond prices.
The rise occurs when investors are less willing to own the debt, meaning they will pay a lower price for the bonds.
Amid the turbulence, Starmer has brought in a former Treasury insider to front the No 10 policy unit.
Civil servant Olaf Henricson-Bell was head of communications to three Tory chancellors.
Starmer 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 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.
The prime minister said the government would be “ruthless” in its approach to public spending, while Downing Street said that “nothing is off the table” as departments consider where to cut.
By Nina Lloyd, Holly Williams and Helen Corbett
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