Starmer has 'full confidence' in Reeves as pound falls

Prime Minister Sir Keir Starmer has said he has "full confidence" in Chancellor Rachel Reeves as she faces criticism over the falling pound and rising government borrowing costs.

The pound fell to $1.21 on Monday, its lowest level since November 2023, while one measure of the rate at which the government can borrow money hit its highest level since 2008.

Borrowing costs are rising for many countries across the world, but some have argued that decisions made in the Budget appear to have made the UK more vulnerable.

Sir Keir said Reeves was "doing a fantastic job", but the Conservatives said she was "hanging on by her fingernails".

When confronted over the chancellor's future at a press conference on Monday, Sir Keir did not publicly confirm that Reeves would still be in post by the next election.

Conservative leader Kemi Badenoch said: "The prime minister just refused to back his chancellor staying in her job.

"The markets are in turmoil and business confidence has crashed, yet the chancellor is nowhere to be seen."

However, senior members of the government have since told the BBC that the prime minister "will be working with her in her role of chancellor for the whole of this parliament".

The row comes after the chancellor defended her decision to travel to China to improve economic ties with the country, despite the uncertainty in the financial markets.

The Conservatives said she had "fled to China", but Reeves said agreements reached in Beijing would be worth £600m to the UK over the next five years.

Reeves is a central figure in the Labour government, presented to the voters as a safe pair of hands in the run up to the election. She also led the work to build bridges with business.

But business and some other observers were shaken by her first Budget in October, which they fear could knock the wind from the economy further, rather than spur the growth Labour has promised.

Market jitters over the past week have increased concerns over the government's economic strategy.

Rising borrowing costs will have a knock-on effect on the government's tax and spending plans, because it will have to pay more interest to finance its existing debt. That leaves less to spend on public services and investment.

Trump factor

Governments generally borrow money by selling bonds to big investors, such as pension funds. UK government bonds are known as gilts.

The yield on the 10-year gilt - the interest rate at which the government pays back a decade-long loan to investors - rose to 4.86% on Monday, its highest level for 17 years.

The 30-year gilt yield climbed to 5.42%, its highest in 27 years.

Government debt costs in Germany, France, Spain and Italy also rose on Monday.

Some experts say investors are reacting to the re-election of former US President Donald Trump and his talk of tariffs.

There is concern this will lead to inflation being more persistent than previously thought, and therefore interest rates will not come down as quickly as expected, both in the US and elsewhere.

Strong US jobs data released on Friday added to expectations that US rates will stay higher for longer, and this has helped to strengthen the value of the dollar against other currencies.

However, Emma Wall, head of platform investors at Hargreaves Lansdown, said the UK's problems were not purely caused by global issues, arguing that measures announced in the Budget have stoked inflation.

"If you can get inflation under control, you will see interest rates come down in the UK," she added.

Reeves also faced questions over her self-imposed rules on government debt and spending, which she said on Saturday were "non-negotiable".

Despite her commitment, some have questioned whether she will be able to achieve the targets without making further spending cuts or tax rises because of how government debt costs have risen.

On Monday, Sir Keir said the government was going to keep to its fiscal rules.

However, he added that the government would be "ruthless" in its decisions for the upcoming spending review.

Confidence 'bruised'

The government has made growing the UK's economy a key objective, but recent figures indicate the economy saw zero growth between July and September, while it contracted during October.

Businesses have warned that Budget measures, such as the rise in employer National Insurance contributions, together with the higher National Living Wage could lead to job cuts and price rises.

Rupert Soames, chair of the Confederation of British Business (CBI), said the picture was "not good" but insisted that firms were still somewhat upbeat.

"I wouldn't say confidence is gone," he told the BBC's Today programme. "I'd say it's bruised."

However, he said the government was making the situation worse by introducing the Employment Rights Bill, which he said contained "powerful dissuaders to employment".

Unions argue the protections introduced in the bill, such as banning fire and rehire, make employees safer, while the government has said it "represents the biggest upgrade in employment rights for a generation".

However, Mr Soames said the bill would lead to job losses. "Businesses will not only not employ, they will let people go," he said.

As part of its push for growth, the government revealed plans on Monday to make the UK the global capital of artificial intelligence through measures such as building a new supercomputer.

Sir Keir said the technology has "vast potential" for rejuvenating UK public services, but the Conservatives called the plans "uninspiring".