Badenoch claims Reeves will be ousted as traders warn on Labour’s turn to left
Tory leader Kemi Badenoch has predicted that Rachel Reeves will be sacked as Chancellor after the local elections in May, as top bankers warn of the impact of any left-turn by the government.
Badenoch asked Sir Keir Starmer whether he would “reshuffle the Chancellor” after the May elections, with the Prime Minister not directly commenting on Reeves’ survivability.
Starmer said he was “very proud” to say that Reeves was set to oversee “falling” inflation at the time of the Spring Statement.
Forecasts for the fiscal event were devised well before the Iran war.
His spokesman later said that there was no change in Starmer’s confidence in Reeves.
Badenoch told MPs his response “sounds like she’s toast”. The Tory chief’s spokesman insisted that Starmer had refused to deny that Reeves would be moved out of her position.
Traders warned on political risk to asset prices
The opposition leader’s attacks came as a top Wall Street bank warned analysts about the risks posed by political turmoil and Labour’s likely leftward turn on fiscal policy for bond markets.
Jefferies researcher Modupe Adegbembo said the upcoming elections would be an “unusually important political event” this year that could sway gilt pricing and other UK assets, potentially adding to government borrowing costs and damaging the valuation of the sterling pound.
Adegbembo said traders might interpret the upcoming elections as a sign of a “structural shift” in policymaking as the dominance of the UK’s two main parties looks set to break down.
She said that political turmoil could “erode” any support for increased valuations in gilts and other assets, adding to the premia on UK government bonds.
Analysis suggested that the FTSE 250 would be “likely to underperform if political risks intensify”.
Adegbembo added that, even with Starmer’s survival, there could be pressure for the Labour government to “adopt a more expansionary fiscal stance”.
“Survival is likely to require fiscal and policy concessions to the party’s left as pressure from the base intensifies,” Adegbembo warned.
“Early signs of this dynamic are already evident, pointing to a structural drift towards higher policy risk regardless of the precise leadership outcome.”
Starmer says he is ‘proud’ of Reeves
Badenoch used the final Prime Minister’s Questions before the prorogation of parliament to attack Starmer for his record on welfare, defence and the economy.
Badenoch told MPs: “Let me tell him why we’re spending more on welfare than we’re earning in tax. It’s because of him and his terrible policies.
“We are spending so much on welfare that we cannot afford to defend the country.”
She also attacked the government for briefings on rent controls being introduced before they were ruled out by Number 10.
Starmer said he would “take no lecture” from the Tories on investing in defence, adding that he was “very proud of what this Labour government delivered in the first session of parliament”.
“We have the youth guarantee that we put in place for young people, we raised the national minimum wage thanks to our Chancellor, we’ve helped young people into work by cutting NHS waiting lists, thanks to the health secretary.”