GILT yields spiked shortly after Chancellor Rachel Reeves was seen crying in the Commons during Prime Minister's Questions.
Reeves, who is the focus of much of the ire of Labour backbenchers following the UK Government's U-turn on the welfare bill on Tuesday, was seen with tears streaming down her face during PMQs after Keir Starmer failed to guarantee the Chancellor would keep her job.
Her sister Ellie Reeves, an MP who also sits in the Cabinet, was seen holding her hand as she left the chamber on Wednesday.
A spokesperson for Reeves said her tears were due to a “personal matter” and No 10 has been forced to confirm the Chancellor still has the Prime Minister’s backing.
Following PMQs, ten-year gilt yields, which move inversely to the price of UK Government bonds and affect the cost of borrowing for the government, rose above 4.6%.
“The echoes of Liz Truss in 2022 are unmistakable,” Nigel Green, the chief executive of the deVere Group, said. “Back then, it was a reckless mini-budget that shattered market confidence.
"This time, it’s a government lurching from one policy retreat to another, raising serious doubts about fiscal control and political authority.”
Reeves is facing intense scrutiny over her handling of public finances after the welfare bill was watered down, with rebel Labour backbenchers reportedly claiming the Chancellor intervened on reforms and looked for quick savings ahead of the Spring Statement.
Labour's welfare U-turn last night will cost the UK Government £3 billion extra, according to the Resolution Foundation, while the restoration of Winter Fuel Payments will add a further £1.3bn to government bills.
Following the Spring Statement, economists warned that Reeves had left herself too little headroom, leaving public finances on shaky ground.
The Institute for Fiscal Studies (IFS) also warned that extra spending commitments would lead to tax rises.
Meanwhile, City analysts have previously estimated that the government could be forced to raise in excess of £20bn in order to restore her fiscal buffer.
Other economists have suggested that the Chancellor could revise fiscal rules to allow for more spending, but higher borrowing commitments could rattle bond markets, with current debt interest payments set to total £104bn, more than double the levels seen in the 2010s.
“Rachel Reeves will pay the price for sticking to her fiscal rules and having a party that won’t let her do so without hiking taxes because they refuse to grasp the benefits nettle,” said UK investor strategist Neil Wilson.
“The market is turning vigilante here and showing a distinct lack of confidence and implication that we could see more borrowing: pricing in higher political risk premium.
“This kind of market reaction is everything Labour hoped to avoid. They staked so much on their fiscal credibility but it’s all gone up in a backbench revolt.”
On Tuesday, the Office for Budget Responsibility (OBR) indicated its near-term growth forecasts had been too lenient on Reeves as it said it would review how it assesses growth policies.
City analysts have warned that the UK Government’s short-term policymaking could affect long-term growth prospects.
