(Bloomberg) — UK Prime Minister Keir Starmer said he has “full confidence” in Chancellor of the Exchequer Rachel Reeves and stressed that his government would stick to its fiscal rules in response to a surge in UK borrowing costs.
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Market turmoil in recent days has hit the pound and sent borrowing costs to their highest since the financial crisis in 2008, putting pressure on Britain’s finance minister amid questions about whether she’ll have to change her economic plans to ensure she continues to meet a self-imposed rule for day-to-day spending to be covered by tax receipts. The prime minister on Monday threw his weight behind her.
“Rachel Reeves is doing a fantastic job,” Starmer told reporters at a press conference after delivering a speech on artificial intelligence in London. “We do have in place fiscal rules which we absolutely stick to because they’re necessary to provide the stability we want,” he said, when asked about how he’d respond to the market pounding taken by UK assets.
The government faces growing calls to spell out how it plans to stabilize Britain’s public finances, after the recent spike in gilt yields made government borrowing more expensive, eroding away the £9.9 billion ($12 billion) margin of error Reeves held against her main fiscal rule at the budget in October. The chancellor is now in danger of being in breach of the rule when the Office for Budget Responsibility publishes a twice-yearly assessment of the British economy in late March.
Starmer batted away questions about whether he’d deliver spending cuts to ensure the fiscal rules are met, but he did say the government would be “ruthless” on spending.
“We’ve got clear fiscal rules and we’re going to keep to those fiscal rules,” he said, echoing his chancellor, who said over the weekend on a visit to China that the strictures are “non-negotiable” and that she’d take action if necessary to ensure they’re not broken.
The types of market movement that have been putting pressure on Reeves and Starmer continued on Monday, as the 10-year gilt yield pushed back toward last week’s peak of 4.92% — the highest level since the global financial crisis in 2008. The moves have come amid a global slide in bonds where UK borrowing costs have been hit particularly hard because of doubts over the British government’s fiscal position.
Reeves is paying the price for giving herself too little breathing space against the current spending rule in her Oct. 30 budget. With her headroom evaporating, people familiar with the matter have told Bloomberg she is considering reducing government spending to stay in compliance with her rules.
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In his AI speech on Monday, Starmer said he was “100% confident” that the government would generate the growth required to improve Britain’s economic position, and that AI would play a key role in that. “Growth is our number one priority and mission,” he said. “All of the other work we’re doing ladders up to this.”
Starmer was speaking as Reeves returned from China, a trip that Britain’s main opposition parties said she should have canceled in order to focus on the domestic situation. Pat McFadden, one of the most senior members of Starmer’s government, earlier defended Reeves’ decision to go to China and also gave her his vote of confidence.
“Rachel Reeves is the chancellor for a good reason, because she’s the right person to do the job,” McFadden told Times Radio. When asked if he thinks she’ll survive until the fall, he said: “Yes, I do.”
–With assistance from Irina Anghel.
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