MW U.K. chancellor's troubles shows it's hard to implement the austerity that Musk and Dalio want

By Steve Goldstein

British bond yields surge as Starmer declined to back Reeves

The Congressional debate over the One Big Beautiful Bill has demonstrated lawmakers' reticence to tackle rising deficits. The U.K. experience shows lawmakers who do want to tackle rising deficits do so at great peril.

Prime Minister Keir Starmer on Wednesday declined to say that Chancellor Rachel Reeves would be in her position through the next election, when asked by Conservative leader Kemi Badenoch during Prime Minister's Questions.

Starmer did not directly answer, talking about examples of infrastructure spending as well as the trade deal with the U.S. A spokesman for Starmer later said Reeves had his full backing until the end of the government's term in office.

The yield on the 10-year gilt BX:TMBMKGB-10Y shot up 20 basis points. Yields move in the opposite direction to prices.

Reeves could be seen with tears rolling down her face while he responded, though that was explained as unrelated to the financial discussion.

Badenoch said the Labour government has made what she called humiliating U-turns. Proposals to reduce winter fuel payments to the elderly and a plan to reduce disability benefits have been scaled back.

Starmer also declined to rule out tax increases in November.

The U.K. has a government deficit ratio of 4.8% of GDP, and the Office for Budget Responsibility forecasts it to fall to 2% of GDP by 2029.

Under the Senate version of the One Big Beautiful Bill, U.S. deficits are projected to reach as high as 8% of GDP, according to the Committee for a Responsible Federal Budget.

Tesla Chief Executive Elon Musk has repeatedly criticized the legislation, as legendary Bridgewater Associates founder Ray Dalio said bipartisan action was needed to tackle rising deficits.

-Steve Goldstein

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July 02, 2025 09:11 ET (13:11 GMT)

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