The government has sought to reassure the public and financial markets that Chancellor Rachel Reeves’ position remains firm, despite a significant shake-up within Prime Minister Keir Starmer’s Downing Street team.
Downing Street moved quickly to calm fears, stressing what it described as an “ironclad commitment” to fiscal discipline, even as borrowing costs surged to their highest level in decades.
According to the prime minister’s official spokesperson, the fiscal rules underpinning government spending are unchanged, and speculation about Reeves being sidelined is misplaced.
“No, and as I say it reflects the strengthening of the relationship between the prime minister and the chancellor, a determination to drive growth in the economy, a recommitment to our robust fiscal rules.”
Prime Minister’s official spokesperson
The reshuffle placed Darren Jones, Reeves’ deputy, into a newly created role as chief secretary to the prime minister. The move drew attention, with some critics arguing it was designed to reduce the chancellor’s influence.
Meanwhile, Baroness Minouche Shafik, a former deputy governor of the Bank of England, was appointed chief economic adviser to No 10. Dan York-Smith, a senior Treasury figure, was brought in as principal private secretary.
Observers believe the changes were to strengthen the prime minister’s economic team ahead of what is expected to be a challenging budget in the autumn. Analysts say tax rises are likely to be on the table, fueling unease within both markets and the political class.
Starmer and Reeves, however, presented a united front. The spokesman said the two leaders spoke “at length over the summer about how these changes would bolster their joint approach to the growth agenda.”
Fiscal Pledges Under Growing Pressure
The backdrop to these moves is one of rising financial strain. The yield on UK government bonds, also known as gilts, climbed to 5.698 per cent, the highest since 1998. Higher yields translate directly into more expensive government borrowing.
At the same time, the pound fell, down 1 per cent against the US dollar at $1.34 and 0.6 per cent against the euro at €1.15.
Without addressing specific market shifts, the prime minister’s spokesman doubled down on the government’s economic stance. “Our ironclad commitment to our robust fiscal rules remain,” he said.
“You’ll have seen since this government took office that we have taken the necessary decisions to stabilise the public finances, drive growth. Our fiscal strategy has been backed by the IMF and others, and our approach has helped interest rates to be cut five times since the election, which is the best way to bring borrowing costs and inflation down.”
Prime Minister’s official spokesperson
When Rachel Reeves took over the Treasury, she set out two key fiscal rules. The first is that by 2029–30, day-to-day government spending should be covered by tax revenues, not borrowing. The second is that net financial debt must fall as a proportion of the overall economy.
These rules, central to her economic credibility, are now being tested. Analysts suggest the spike in gilt yields indicates investor doubts about whether the Treasury will stay within its self-imposed limits.
Nonetheless, Downing Street insists the reshuffle reflects not weakness, but an effort to bolster its economic firepower ahead of major decisions. Reeves, who faces a difficult few months as pressure mounts for tax increases, remains at the heart of the government’s economic strategy.
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