Labour government faces political uncertainty and fiscal challenges, UK bond markets reflect risks

From Morningstar: 2025-07-03 12:38:00

The Labour party faces political uncertainty as bond yields spike and the pound falls due to speculation about Chancellor Rachel Reeves resigning. Markets stabilize after Prime Minister Keir Starmer confirms Reeves will stay. Institute for Fiscal Studies expects £3 billion cost from failed welfare reforms. UK bond yields reflect political and economic risks.

UK bond market outlook shows yields lower in Q3, indicating market fears. Rising yields signal investors selling government debt, while falling yields show buying. Markets anticipate Autumn Statement after summer recess. Neil Mehta warns of fiscal crisis without tough decisions. Long-term yields are higher, short-term yields lower since Labour took power.

Labour government struggles with promises on welfare, defense, and taxes, losing political capital. Markets doubt fiscal policy adherence. Government faces fiscal challenges amid weak economic growth and contraction. Economists predict instability despite majority in parliament. Reeves’ Mansion House speech may reveal plans to cut cash savings allowances.

Investors await potential pension allocation to private markets. Savers watch for leaked plans on cash savings allowances. Labour government’s fiscal situation precarious, facing tough decisions. Markets wary of government’s ability to boost growth. Political uncertainty looms as government grapples with fiscal challenges. Bonds reflect economic and political risks.



Read more at Morningstar: One Year of Keir Starmer and The UK Bond Markets Are Restless Again