Markets surge after Starmer confirms Reeves’ long-term role and reiterates fiscal discipline

UK financial markets rebounded sharply today after Prime Minister Keir Starmer publicly backed Chancellor Rachel Reeves and reaffirmed commitment to fiscal rules. The announcement reversed mid-week losses triggered by investor anxieties over Reeves’ future, boosting gilt prices, stabilising the pound, and lifting equities.

📊 Market Moves

• Gilts rally: Yields on 10‑year bonds fell nearly 0.13 percentage points to around 4.53%, reversing Wednesday’s spike to 4.66% amid concerns about fiscal drift.
• Longer maturities drop: 30‑year gilt yields eased to about 5.32%, providing relief after touching 5.47% .
• Pound strengthens: The pound rallied approximately 0.15% against the US dollar, reclaiming losses from earlier this week .
• Stocks rebound: The FTSE 100 gained about 0.4%, while mid-cap stocks climbed 0.7% on renewed investor confidence . Chemical and consumer discretionary stocks led the charge.

🔍 The Trigger

• Emotional moment at PMQs: Reeves appeared tearful in Parliament on Wednesday, prompting speculation about her political standing.
• Investor concerns: Markets feared her potential replacement could abandon strict fiscal policies, increasing borrowing and inflation risks.
• Reassurance from Starmer: In a BBC interview, Starmer emphasized that Reeves was “going nowhere” and had his “full backing for a very long time” .

💼 Expert Insight

• Axa IM’s Chris Iggo noted that markets “viewed Reeves as a champion of fiscal prudence” and feared any departure could trigger looser government spending.
• Hargreaves Lansdown’s Susannah Streeter highlighted that despite today’s bounce, investors remained cautious over longer‑term fiscal strategy.
• MarketWatch economists likened the episode to a potential repeat of the 2022 “Truss moment,” suggesting market pressure preserved Reeves’ position.

🔮 What’s Next

• Fiscal clarity needed: Markets are watching for detailed updates on how Labour plans to close the public finance gap—especially given welfare policy reversals.
• Upcoming data: Service sector growth, inflation prints, and BoE projections will be key to assessing future rate and bond trajectory.
• Policy risk stays high: With a £5 bn hole from welfare concessions, investors remain alert to any sign of weaker fiscal discipline.