The markets don’t do sympathy – but they want Reeves to stay (for now)

There were some in the aftermath of Rachel Reeves’s tears at Prime Minister’s Questions and the markets falling who supposed the latter were showing their kindness to the beleaguered British chancellor. This was speculators saying they regretted her possible demise and they wished Reeves to stay.

Certainly, the two appeared to go together – Reeves seemingly on the brink and the value of the pound and gilts plunging. None of us know what exactly prompted her anguish and what Sir Keir Starmer discussed with his aides after PMQs. They may have seen the reaction and if they had any plans to remove her decided to shelve them. In that sense, Reeves would have been saved by the City.

It would, though, be wrong to make that interpretation. Investors behaved the way they did, effectively marking down the British economy, not because they are fans of Reeves the person but because they cannot abide change. They abhor uncertainty and nothing would create greater uncertainty than the sudden resignation of the chancellor.

It can be argued, put like that, they did wish her to remain. It’s true that with Reeves there is a case for the devil they know, that with her in place there is solidity and responsibility – she is no Liz Truss – although increasingly that description appears tenuous.

More to the point was that her exit would open up a whole new level of unpredictability. Reeves is not just a jobbing chancellor; she is bound up with the prime minister. As Starmer has put it subsequently, they are in “lockstep” together. Theirs is a joint enterprise. Ever since he was in opposition, preparing for the general election, it has been Starmer and Reeves. It was as a double act that they toured the banking and industry boardrooms and business chiefs’ gatherings, persuading them that this Labour administration could be trusted with their money.

It was a pairing, too, that went some way to encouraging the electorate to vote for them in substantial numbers. They were man and woman (Labour’s highest ever ranked), lawyer and Bank of England and commercial bank economist (at least that is what Reeves said she was), a serious-minded duo, bringers of relative calm after the rollercoaster ride of the Tory years.

Of course, Starmer and Reeves were going to implement Labour policies. But with a thumping majority underpinning them, they were not in hock, unlike previous Labour leaders, to the left. With them behind the wheel, the country was set fair on a flatter, quieter course.

The first intimation that this was not the case came with Reeves’s first Budget. She clobbered private schools, non-doms, farmers – all holders of values that many of those who work in business and the Square Mile hold dear. But again, the markets do not do emotion, it is never personal. What sparked disquiet was the collective effect of her measures, especially the raising of employers’ national insurance contributions. Again, this was not because the investment community comprises employers but because they were worried about the likely economic effect, depressing domestic and inward investors.

Still, while there was private gnashing of teeth and moaning over lunches, dinners and drinks in golf club bars, there was a certain begrudging admiration for Reeves’s attempt to tackle the impossibly awkward hand she had been dealt. They did not like her or her boss, but then many of them never would. It did not matter; they did not have to.

They could see that Reeves was struggling to hold it together (literally as it turned out) and, along with Starmer, despite everything that was thrown at them, she was intent on pursuing that same narrow, even course.

Starmer was credited with having had a fine tariffs war to date – another premier might have fared less well with Donald Trump. It is true that worries were building over the nation’s financial health, but here, too, there was analysis that highlighted how poorly other economies, notably those in the EU, were faring.

The prime minister and his dogged lieutenant would harp on about going “faster and further” in achieving growth and the City took that with a pinch of salt – the figures were indicating otherwise. It was a concern, but at the same time, the chalk and chalk, undynamic combo were never allowing their discipline to waver, and could be relied upon to strive to balance the books.

There were episodes too, when Reeves seemed to wobble. Again, nothing unduly untoward. Then came this week and welfare reform. The number-crunchers who determine investors’ strategy quite liked what Reeves was proposing – it was part of her and Starmer’s resolution to put the country’s finances on a firmer footing.

But the left didn’t and Starmer ordered a climbdown. Reeves found herself nursing an unexpected £5bn deficit. Further tax rises, probably on business and the wealthy looked probable; now they’re inevitable. She did not like it; more to the point, the markets got jittery. Far from having absolute control as the scale of his victory suggested, only one year into his reign with, in theory, four more to go, and Starmer had allowed the left to share that wheel. Reeves’s misery said everything.

A government that promised to lead the UK on a truer road was now returning it to lurching mode. It was likely Reeves would depart and be replaced, but by whom? God forbid, not the leftie diehard, Angela Rayner. It was even conceivable that the whole Starmer edifice could collapse, despite his massive safety net; that ultimately, he might also have to resign. Then what? At the very least, the make-up of his rule, the strong base he originally afforded, is fundamentally weakened.

This and more went through hard minds. Investors are human but there was no humanity in why those markets fell.