The markets have delivered their verdict on Labour’s latest bout of infighting — and it’s brutal.
The pound has nosedived in the wake of Keir Starmer’s reshuffle, which effectively shoved Chancellor Rachel Reeves to the sidelines.
Sterling tumbled more than 1.2 percent against the dollar, falling below $1.34, while Britain’s borrowing costs surged to levels not seen since 1998.
Investors appear to have little faith in Sir Keir’s muddled economic team, raising fears that the country is heading for higher taxes and deeper financial turmoil.
In a move widely seen as undermining Reeves ahead of a crucial Budget next month, Starmer installed three financial heavyweights directly into his top team. He appointed Darren Jones, Reeves’ own former deputy, as Chief Secretary to the Prime Minister. Baroness Shafik, a former Bank of England deputy governor, was parachuted in as chief economic adviser. And Dan York-Smith, a 20-year Treasury insider, was named Starmer’s principal private secretary.
Even Labour’s spin machine struggled to contain the fallout. Home Secretary Yvette Cooper claimed Reeves had not been “sidelined,” insisting the changes were “quite the reverse.” She added: “I think the Prime Minister and the Chancellor have always worked extremely closely together and continue to do so.”
But the markets told a different story. The pound was the worst performer among major global currencies on Tuesday, sliding another 0.6 percent against the euro to €1.15. Meanwhile, the cost of servicing Britain’s ballooning debt soared, with 30-year gilt yields jumping to 5.69 percent — a 27-year high.
Chris Beauchamp, chief analyst at IG, warned in The Telegraph that the spike in borrowing costs “complicates matters enormously for the Government, in turn signalling that tax rises are coming in the autumn Budget.” He added: “Ironically, of course, the situation now seems more ripe for austerity policies than in 2010, but the country as a whole will not take kindly to a government trying to cut spending at a time when so many are feeling the pinch of inflation.”
Starmer may try to present his reshuffle as strong leadership, but the reality is clear: the markets don’t trust Labour. And if this is what happens before the Budget, the country should brace itself for far worse when Reeves is finally forced to put numbers to paper.
