Reeves appeared at Prime Minister’s Questions on Wednesday after the government reversed its plans to cut benefits.
Her emotional state sparked speculation about her position in government, causing market reactions.
The pound saw a significant decrease of 1% against the dollar, although it had been performing well recently.
Borrowing costs also experienced a sharp increase, similar to the market turmoil in October 2022 after Truss’ mini budget, which ultimately led to her downfall.
The rise in costs slightly decreased after Prime Minister Keir Starmer’s press secretary denied rumors of Reeves being replaced.
However, yields continued to rise, indicating that borrowing costs remained high.
The reversal of welfare reforms has created a nearly £5 billion deficit in Reeves’ fiscal plans.
The initial rise may have been caused by speculation of Reeves stepping down, suggesting she still holds credibility in the market.
However, the sustained increase in borrowing costs suggests broader concerns about the government’s budget calculations are emerging.
When asked about Reeves’ emotional state, a Treasury spokesperson stated it was a personal issue that caused her distress.
The movements in the pound and gilt yields are indicative of fiscal strain, which the UK has faced before, according to Kathleen Brooks, research director at XTB.
The FTSE 250, which is more affected by UK policies than the FTSE 100, ended the day with a 1.34% decrease.