Finance
UK markets see 2022-style selloff as worries build over finance minister
Published by Global Banking & Finance Review®
Posted on July 2, 2025
5 min readLast updated: January 23, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on July 2, 2025
5 min readLast updated: January 23, 2026
UK markets face a selloff as finance minister's distress raises concerns. Bond yields spike, echoing 2022 fears.
LONDON (Reuters) -British government bond prices fell by the most since October 2022 and the pound tumbled on Wednesday, after finance minister Rachel Reeves appeared visibly distressed in parliament, a day after the government sharply scaled back plans to cut benefits.
The yield on the 10-year government bond, or gilt, rose as much as 22 basis points on the day at one point to around 4.68%, as investors ditched UK debt.
That would be the largest one-day jump in the British benchmark yield since October 2022, in the aftermath of then-Prime Minister Liz Truss' mini-budget that cost her premiership.
The pound dropped by over 1% to $1.3589, while domestic mid-cap stocks tumbled.
COMMENTS:
LINDSAY JAMES, INVESTMENT STRATEGIST, QUILTER, LONDON:
"The spike in gilt yields is seemingly a response to signals that have been taken by some to suggest that Rachel Reeves’ job may be at risk – though the government has since said her tearful appearance in this afternoon’s PMQ’s was due to a personal matter. The rise in yields implies investors would be nervous if she were to go. Despite the regular criticism levied in her direction, unwavering commitment to her fiscal rules have generally been welcomed - in sharp contrast to the unfunded pledges from the Truss government.
A sudden departure would be likely to prompt questions about the government’s commitment to this approach, particularly in light of the recent U turn on planned cuts to welfare spending."
MOHIT KUMAR, CHIEF FINANCIAL ECONOMIST EUROPE, JEFFERIES, LONDON:
"The UK government faces a difficult choice. We have a negative view on the UK fiscal picture. Our view of growth is much lower than the official OBR forecasts (we are looking at 1-1.2% growth in the UK for the next three years, vs 1.7-1.9% which is the OBR forecasts). Lower growth will make the Chancellor's fiscal plans unrealistic. Even if we get higher taxes, we do not think that raising taxes will give as much revenue as the government would be hoping for.
Thus the government would need hard choices in order to bring the deficit picture in line. Recent market reaction reflects the market concerns on the credibility of the government to bring down fiscal deficits."
GORDON SHANNON, PORTFOLIO MANAGER, TWENTYFOUR ASSET MANAGEMENT, LONDON:
"(The welfare U-turn) is signalling that the Labour Party is a lot less concerned about what the gilt market thinks."
"I would have thought it was seared into politicians' memories what happened to Liz Truss."
"I continue to view it as you've breached your own commitments and that sets fire to your credibility in a world where there is increasing focus on the solvency positions of governments."
CHRIS SCICLUNA, HEAD OF ECONOMIC RESEARCH, DAIWA CAPITAL MARKETS, LONDON:
"Clearly the market is revaluating the outlook for fiscal policy and hence the significant steepening in the gilt curve. The vote in the House of Commons gives reason to think again about the likely outlook for public borrowing.
"The market has understood for some time that the government was off track on borrowing and was anticipating corrective measures in the budget but if markets continue to move in the direction we see today, it might have to make some announcements on the revenue side than on public expenditure cuts.
"The BoE is obviously reviewing QT and they will probably bring an end to asset sales in the autumn."
JANE FOLEY, SENIOR FX STRATEGIST, RABOBANK, LONDON:
"Since the savings from welfare reform that Chancellor Reeves had pencilled in have now evaporated, UK budget issues are back in the fore. The gilt curve steepened at the open this morning as concerns about supply returned. In addition, the UK press is speculating that a cabinet reshuffle could be in the pipeline. Some of this has hinted that Starmer could even replace Reeves as Chancellor."
NEIL WILSON, UK INVESTOR STRATEGIST AT SAXOBANK, LONDON:
"Gilt yields were moving up but started to spike during (Prime Minister's Questions) as Reeves looked utterly shaken."
KATHLEEN BROOKS, RESEARCH DIRECTOR, XTB, LONDON:
"The prospect of political turmoil is causing bond yields to rise. The market is pricing in the possibility of a replacement chancellor with a more left-leaning agenda, which is spooking the bond market and waking up the bond vigilantes from their slumber."
DANNI HEWSON, HEAD OF FINANCIAL ANALYSIS, AJ BELL, LONDON:
"It's about Rachel Reeves finding herself in a very difficult situation following a series of U-turns, which means that the savings that had been anticipated from the winter fuel payments and from the disabilities changes - well, they're not going to be had.
And that leaves her with another black hole and the question now is, how does she deal with that? And of course, there's an awful lot of speculation that she will have to increase taxes, but if she were to do that after saying that she wasn't going to, then that is politically difficult for the Labour government.
What's gone on in Parliament today has absolutely unsettled (investors)"
(Reporting by EMEA Markets Breaking News Team; Compiled by Amanda Cooper; Editing by Dhara Ranasinghe)
The selloff was triggered by concerns over Finance Minister Rachel Reeves, particularly after her distressed appearance in parliament, which led to a spike in gilt yields.
The pound dropped by over 1% to $1.3589 as investors reacted to the political turmoil surrounding the finance minister.
Experts express concerns about the UK government's credibility in managing fiscal policy, especially after recent U-turns on welfare spending.
Gilt yields rose significantly, with the 10-year government bond yield jumping as much as 22 basis points, reflecting market fears about her job security.
The prospect of political instability is causing bond yields to rise, as the market anticipates a potential replacement of the finance minister with a more left-leaning agenda.
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