Conservative leader Kemi Badenoch has predicted that Chancellor Rachel Reeves will be sacked after the local elections in May, as top bankers warn of the impact of any leftward shift by the government.
Badenoch Questions Starmer on Reeves
During Prime Minister's Questions, Badenoch asked Sir Keir Starmer whether he would “reshuffle the Chancellor” after the May elections. Starmer did not directly comment on Reeves' survivability, instead saying he was “very proud” that Reeves was overseeing “falling” inflation at the time of the Spring Statement. He noted that forecasts for the fiscal event were devised before the Iran war. A spokesman later confirmed no change in Starmer's confidence in Reeves. Badenoch told MPs his response “sounds like she’s toast”. The Tory chief’s spokesman insisted Starmer had refused to deny that Reeves would be moved.
Traders Warn on Political Risk
Badenoch’s attacks coincided with a warning from Jefferies researcher Modupe Adegbembo about the risks of political turmoil and Labour’s likely left turn on fiscal policy for bond markets. Adegbembo said the upcoming elections would be an “unusually important political event” this year, potentially swaying gilt pricing and other UK assets, increasing government borrowing costs and damaging sterling valuation. She noted traders might interpret the elections as a sign of a “structural shift” in policymaking as the dominance of the UK’s two main parties breaks down. Political turmoil could “erode” support for increased valuations in gilts, adding to the premia on UK government bonds. Analysis suggested the FTSE 250 would “likely underperform if political risks intensify”.
Possible Fiscal Expansion
Adegbembo added that even if Starmer survives, there could be pressure for Labour 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,” she 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 Defends Record
In the final PMQs before prorogation, Badenoch attacked Starmer on welfare, defence, and the economy. She said: “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 criticized government briefings on rent controls that were later ruled out. Starmer responded he would “take no lecture” from the Tories on defence investment, adding he was “very proud of what this Labour government delivered in the first session of parliament”. He highlighted the youth guarantee, the national minimum wage increase, and reduced NHS waiting lists.
