Thread by @alexwickham

NEW: @BloombergUK Saturday read

Keir Starmer is trapped between Labour and the bond market with nowhere to go

It could wreck his premiership

A person close to No10 says there are “100 Liz Trusses” in the party who don’t understand the public finances

bloomberg.com/news/articles/…

— Labour MPs have shown they can’t stomach spending cuts and that they’re able to wrest control of fiscal policy from Reeves

— that’s of major concern to global investors worried about rising govt debt who have the power to send borrowing costs surging

bloomberg.com/news/articles/…

— Reeves now has to find ~£30 billion in another horrible budget

— she says she’ll stick to her fiscal rules. That means big tax rises

— the bond market saved her this week, threatening carnage if she was replaced with someone who’d borrow more

bloomberg.com/news/articles/…

— but many in Labour still want to borrow their way out

— Labour MP Melanie Onn today says fiscal rules should be relaxed

— that demand comes *after* this week’s bond market turmoil

— Onn is far from alone

— one trading desk view of that: “Insane”

bloomberg.com/news/articles/…

— many MPs don’t get the basic economics that if they push borrowing costs up, it makes it harder for the govt to spend

— “The gilt market will remain very sensitive to any signs of political or fiscal weakness in the months ahead,” says AXA’s Chris Iggo

bloomberg.com/news/articles/…

— politicians may not want to be at the mercy of markets but in 2025 that’s the reality

— it’s a hard time for the govt to borrow

— bond markets are more volatile thanks to globally high debts and the rising role of fast-money investors like hedge funds

bloomberg.com/news/articles/…

— @LabourGrowth Chris Curtis has a more market-realistic view

“The fiscal position isn’t something we can just wish away. Bond markets don’t believe in fairy tales”

Says govt must “confront difficult tradeoffs” not “retreat into comfortable narratives”

bloomberg.com/news/articles/…

— of course you can say markets overreacted to rumours and the scenes in the Commons on Weds

— senior govt source says there was never any consideration of changing Reeves or the fiscal rules

— but big debts + Labour rebellions + u-turns = nervousness

bloomberg.com/news/articles/…

— message to Labour on the risk of the UK being stuck in a doom loop from Blonde Money’s Helen Thomas

“More borrowing cannot easily be digested by markets… More tax rises eventually reach a point where the tax burden cannot produce extra revenue.” 

bloomberg.com/news/articles/…