All eyes are on the UK’s ruling Labour Party for signs of further political rifts that could undermine Britain’s economic stability, after the country’s finance minister was seen crying in parliament on Wednesday (2.7.2025). British bond yields rose and the pound plummeted against the dollar and euro as Prime Minister Keir Starmer failed to support Chancellor Rachel Reeves during a question-and-answer session in the House of Commons. Tears rolled down Reeves’ face while Starmer appeared unaware of her distress behind him.
Market movements were abrupt, as traders speculated that Reeves might lose her job or possibly resign, taking with her the strict “fiscal rules” governing spending and borrowing. Simon Pittaway, senior economist at the Resolution Foundation, told CNBC: “A lot of eyes are on the UK. When the [next] autumn budget comes around, whoever is chancellor will have some really tough decisions to make. Maintaining the existing fiscal rules is really vital—it would signal credibility and confidence to the market at a time when the country is under scrutiny.”
The government tried to calm the situation amid growing market turmoil, with a spokesperson attributing Reeves’ distress to a “personal matter” without elaborating further. Later, the prime minister told the BBC that he and the chancellor were “on the same wavelength” and that he fully supported her. These comments appeared to soothe markets, with London’s FTSE 100 rising nearly 0.5% in early trading Thursday (3.7.2025), and the British pound also gaining ground against the euro and dollar.
However, Reeves faces mounting pressure following last autumn’s budget, which introduced a major boost in public spending largely funded by a significant increase in business taxation. She has pledged to follow two fiscal rules—to ensure day-to-day government spending is funded by tax receipts rather than borrowing, and to reduce public debt as a percentage of economic output by 2029–2030. But these rules have left little fiscal wiggle room, and recent policy shifts have further narrowed it.
Now, with another government reversal this week—this time on disability benefits—Reeves must find savings elsewhere, raise taxes on workers, or risk breaking her own borrowing rules. Meanwhile, Labour leadership now faces rebellion from a group of emboldened MPs who may challenge the government on other contentious reforms and spending cuts.
Max Wilson, director of public relations at Whitehouse Communications, told CNBC: “The nature of what happened in the last 48 hours—with the government’s welfare bill torn apart—means the government’s political and economic strategy is in real trouble right now. Financially and economically, there’s very little they can do, and Rachel Reeves has an incredibly difficult job ahead finding extra money without resorting to actions that will unsettle markets.”