U.K. Chancellor Rachel Reeves in Tears as Markets React to Political Turmoil

preCharge News BUSINESS — All eyes are now on the U.K.’s ruling Labour Party amid fears of internal fractures that could shake Britain’s fragile economic stability. On Wednesday, Chancellor Rachel Reeves was seen crying during a heated debate in Parliament — a dramatic moment that sent bond yields soaring and the British pound falling against the dollar and euro.

Prime Minister Keir Starmer initially failed to support his finance minister when asked about her position, further fueling speculation that Reeves could be preparing to resign — potentially jeopardizing her strict fiscal rules on spending and borrowing.

“There are a lot of eyes on the U.K.,” said Simon Pittaway, senior economist at the Resolution Foundation, in an interview with preCharge News.

Market Reaction and Reassurance Efforts

Pound and Bonds Stabilize After Government Statement

U.K. markets experienced immediate volatility as traders questioned the future of Reeves’ economic strategy. A government spokesperson attributed the chancellor’s emotion to a “personal matter,” while Starmer later told the BBC the two were “in lockstep.”

These comments helped calm investor concerns. On Thursday, the FTSE 100 rose nearly 0.5%, while the pound strengthened against both the euro and U.S. dollar. The yield on benchmark 10-year gilts dropped by 6 basis points.

Later that day, Starmer and Reeves appeared together at a public event and addressed the incident. Starmer reiterated his full support:

“I have every faith in my chancellor… we wouldn’t be doing what we’re doing today without those important decisions.”

Reeves’ Fiscal Rules and Mounting Pressures

Autumn Budget Policies Spark Ongoing Scrutiny

The finance minister has faced increasing pressure since unveiling her Autumn Budget, which included a significant public spending boost largely funded by tax hikes on businesses. She also introduced two key fiscal rules:

Daily government spending must be funded through tax revenue, not borrowing.
Public debt must decline as a share of GDP by fiscal year 2029-30.

However, these rules have given Reeves minimal fiscal headroom, a constraint worsened by government U-turns on welfare spending — including a recent reversal on disability benefits.

“Sticking to those fiscal rules, and depending on the government’s priorities, some combination of higher taxes and lower spending… might be the way forward,” Pittaway said.

Labour’s Internal Tensions and Political Fallout

Backbench Revolt Threatens Unity and Reform Agenda

Labour’s political grip may be slipping. Following the government’s retreat on welfare reform, discontent among backbench MPs is growing, increasing the risk of rebellion against future spending cuts or reform proposals.

“The nature of what’s happened over the last 48 hours… means that the government’s political and economic strategy are in absolute dire straits,” said Max Wilson, director at Whitehouse Communications.

Wilson noted that the government has “such little wiggle room” left due to its own political choices and rising resistance from within.

“Rachel Reeves has such a tough job on her hands now… finding the extra money without upsetting the markets — through borrowing or tax rises — really leaves the government in a bind.”