UK financial markets took a sharp hit on Tuesday, July 1st, as concerns mounted over Britain’s fiscal trajectory and the potential departure of Chancellor of the Exchequer Rachel Reeves. The pound dropped more than 1%, sinking below $1.36, while the FTSE 250 Index fell 1.5% and government borrowing costs surged.
The selloff intensified after Prime Minister Keir Starmer declined to confirm whether Reeves would remain in her role through to the next general election when questioned in Parliament. Reeves, seated beside him during the session, appeared emotional and was seen wiping away tears. Although Starmer’s office later expressed support for the Chancellor and the Treasury attributed her demeanor to a personal issue, the damage to market confidence was already done.
“The calculus seems to be that Reeves is soon on her way, and that her replacement will loosen the fiscal rules significantly,” said Michael Brown, a strategist at Pepperstone.
Such swings have become all too familiar for UK markets in recent years. The shadow of 2022 still looms large, when then-Prime Minister Liz Truss’s unfunded tax cuts triggered a historic bond selloff and sent the pound to a 37-year low.
