Reeves will remain for all of Parliament, Downing Street says

Downing Street has stated that Chancellor Rachel Reeves will remain in her position "for the duration of this parliament," following criticism she faced over the falling pound and rising government borrowing costs. On Monday, the pound fell to $1.21, its lowest level since November 2023, while a measure of government borrowing costs rose to its highest level since 2008.

Borrowing costs are rising in many countries globally, but some believe that certain decisions in the budget appear to have made the UK more vulnerable. The Conservative Party has stated that the Chancellor is "on the ropes." Previously, at a press conference, when asked if Reeves would remain Chancellor for the duration of this parliament, the Prime Minister declined to answer, but later said he had "full confidence" in her and that she was doing a "very good job."

Conservative leader Kemi Badenoch said: "The Prime Minister has just refused to back his Chancellor to remain in post. The markets are in turmoil, business confidence is collapsing, and yet the Chancellor is nowhere to be seen." However, the Prime Minister's official spokesperson later stated: "You heard from the Prime Minister this morning. He was very clear that he has full confidence in the Chancellor and that she will remain Chancellor for the duration of this parliament."

This debate follows the Chancellor's defense of her decision to travel to China to improve economic relations with the country, despite the uncertainty in financial markets. The Conservative Party said she had "fled to China," but Reeves stated that the deals made in Beijing would bring £600 million of value to the UK over the next five years. Reeves is a key figure in the Labour government and is seen by voters as a trusted representative ahead of the general election, and she has also led efforts to build bridges with the business community.

However, the business community and some other observers were alarmed by her first budget in October, fearing it could further weaken the economy rather than stimulate growth, as Labour had promised. The market turbulence of the past week has heightened concerns about the government's economic strategy. The rise in borrowing costs will have a knock-on effect on the government's tax and spending plans, as it will have to pay more interest to finance its existing debt. This will reduce spending on public services and investment.

Governments typically borrow money by selling bonds to large investors such as pension funds. UK government bonds are known as gilts. The yield on 10-year gilts (the interest rate the government pays investors for a 10-year loan) rose to 4.88% on Monday, its highest level in 17 years. The 30-year gilt yield climbed to 5.44%, its highest level in 27 years. Government debt costs also rose on Monday in Germany, France, Spain, and Italy.

Some experts have stated that investors are reacting to the potential re-election of former US President Donald Trump and his comments about tariffs. There are fears that this could lead to inflation being more persistent than previously expected, and therefore interest rates in the US and elsewhere will not fall as quickly as anticipated. Strong US jobs data released last Friday added to expectations that US interest rates will remain higher for longer, which has helped to strengthen the value of the dollar against other currencies.

However, Emma Wall, head of investment for the Hargreaves Lansdown platform, stated that the UK's problems are not entirely caused by global issues, and she believes that measures announced in the budget have exacerbated inflation. "If you get inflation under control, you will see UK interest rates come down," she added. Reeves has also faced questions about her own rules regarding government debt and spending, which she said on Saturday were "non-negotiable."

Despite her promises, some are questioning whether she will be able to achieve her targets without further cuts to spending or tax increases, as government debt costs have already risen. On Monday, Sir Keir Starmer said that the government would stick to its fiscal rules. However, he added that the government would be making "ruthless" decisions in the upcoming spending review. The government has made growing the UK economy a key objective, but recent figures showed zero growth between July and September, and a contraction in October.

Businesses have warned that budget measures, such as increases to employer national insurance contributions, as well as the higher national living wage, could lead to job losses and price increases. The Confederation of British Industry (CBI) chairman, Rupert Soames, said that the situation was "not good," but he insisted that businesses were still somewhat optimistic. "I wouldn't say confidence has evaporated," he said on BBC's Today program. "I would say it's been dented."

However, he said that the government was making matters worse by introducing the Employment Rights Bill, which he said contained "powerful employment disincentives." Trade unions argue that the protections introduced in the bill, such as a ban on "fire and rehire," make employees safer, while the government says the bill "represents the biggest upgrade to employment rights in a generation." However, Mr. Soames said that the bill would lead to job losses.

"Businesses won't just not hire, they will fire people," he said. As part of its push for growth, the government on Monday unveiled plans to make the UK a global hub for artificial intelligence, with measures such as building new supercomputers. Sir Keir Starmer said that the technology had "huge potential" to revitalize UK public services, but the Conservatives called the plans "nothing new."