Reeves sends Labour MPs warning over bond market wrath
Chancellor Rachel Reeves has sent anxious Labour backbenchers a stark warning on the wrath of bond markets in a bold intervention.
After walking into Downing Street on Thursday morning, the Chancellor told the BBC that leadership battles risked “plunging the country into chaos”.
She demanded that backbenchers maintained support for the Prime Minister as she said they had an “important decision to make”.
Asked about the impact of a leadership contest on her economic policies, she said: “Labour MPs have got an important decision to make today, but the numbers show that the economy is growing and that when we entered this conflict, our economy was growing strongly because of the decisions that I have made as Chancellor.
“We shouldn’t put that at risk.”
Reeves’ comments came as the Office for National Statistics (ONS) revealed growth in the first quarter of the year was higher than expected at 0.6 per cent, with rises seen in all of the services, construction and manufacturing sectors.
She said that her “plan” for growth was “starting to bear fruit” and that the government’s agenda for higher investment in public services would damage hopes of tackling the cost of living.
Her comments are likely to be taken as a warning on how bond markets would respond to constant leadership speculation.
Gilt yields have jumped higher over the course of the week, pushing up government borrowing costs.
Reeves defends growth plan
Several City economists said political turmoil would dampen growth hopes over the coming months given tightening in financial markets.
The Institute of Chartered Accountants in England and Wales’ chief economist Suren Thiru warned that further political instability would dent investors’ confidence and result in lower spending across the UK economy.
A Labour Party-linked think tank separately said the Iran war would anyway lead to a borrowing spree, regardless of which Labour figure is in Number 10.
The Resolution Foundation, the economics think tank where Treasury ministers Dan Tomlinson and Torsten Bell previously worked, said government borrowing would be £16bn higher in 2030 than estimated.
It called for the government to use the energy price shock to make government spending more efficient and to build closer ties with the EU.
Its chief executive Ruth Curtice said the Labour government had “ducked” making tougher decisions on growth as she urged it to “ruthless prioritise what really matters”.
“There is no plausible route to growth in Britain today that doesn’t include sounder public finances, and taking on those who oppose more trade,” Curtice said.