Chancellor Rachel Reeves has sent a stark warning to anxious Labour backbenchers about the potential wrath of bond markets, urging them to maintain support for the Prime Minister. Speaking after arriving at Downing Street on Thursday morning, Reeves told the BBC that leadership battles risked “plunging the country into chaos.” She emphasized that Labour MPs have an “important decision to make” and must not jeopardize the economic progress achieved under her policies.
Economic Growth Beats Expectations
Reeves’ comments came as the Office for National Statistics (ONS) reported that UK GDP grew by 0.6% in the first quarter of 2025, exceeding forecasts. Growth was recorded across services, construction, and manufacturing sectors. The Chancellor stated that her “plan” for growth was “starting to bear fruit,” but warned that higher investment in public services could undermine efforts to tackle the cost of living.
Bond Market Concerns
Her intervention is widely seen as a warning about how bond markets might react to ongoing leadership speculation. Gilt yields have risen sharply this week, increasing government borrowing costs. Several City economists have cautioned that political turmoil could dampen growth prospects in the coming months due to tightening financial conditions.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, warned that further political instability would dent investor confidence and reduce spending across the UK economy. Meanwhile, a Labour Party-linked think tank, the Resolution Foundation, argued that the Iran war would lead to a borrowing spree regardless of who is in Number 10. The foundation estimated that government borrowing would be £16 billion higher by 2030 than previously projected.
Call for Fiscal Discipline
The Resolution Foundation urged the government to use the energy price shock as an opportunity to make spending more efficient and strengthen ties with the European Union. Its chief executive, Ruth Curtice, said the Labour government had “ducked” making tough decisions on growth and called for a “ruthless prioritisation of what really matters.” She added, “There is no plausible route to growth in Britain today that doesn’t include sounder public finances and taking on those who oppose more trade.”
