UK government bond markets rally after Starmer backs Reeves
UK government bonds have rallied after Keir Starmer backed Rachel Reeves to remain as chancellor for “a very long time” despite lingering investor concerns over a multibillion-pound hole in Britain’s public finances.The yield – in effect the interest rate – on 10-year British government bonds, also known as gilts, fell on Thursday morning to trade close to 4.5%, reversing much of the rise on Wednesday sparked by feverish speculation over Reeves’s future.The pound rose against other leading currencies, while a closely watched business survey showed that Britain’s dominant service sector recorded its fastest rate of growth in 10 months.Some of the gains were later pegged back after the release of stronger-than-anticipated US job market figures, which fuelled a rise in US government borrowing costs as investors bet the Federal Reserve may delay cutting interest rates.
After Starmer had failed initially to give his full backing to a tearful Reeves at prime minister’s questions, he used a BBC interview late on Wednesday to publicly express his support for the chancellor and denied suggestions she had been upset by the fallout over the government’s welfare bill,Investors said, however, that a climbdown over the bill and the backtracking on cuts to winter fuel payments for most pensioners had left a large hole in the public finances that would need addressing at the autumn budget,After Thursday morning’s recovery in the bond markets, Neil Wilson, the UK investor strategist at Saxo Bank, said: “The calculation was that [Reeves is] probably the most market-friendly chancellor Labour could field, so replacing her indicated a higher chance of changing fiscal rules, implying more debt and instability,“But there is a deeper problem for the government here even if she stays – the market is getting nervous about its ability to make the sums add up whether she is ‘market-friendly’ or not, and the economic outlook is hardly improving,”A broad rebellion by Labour backbenchers forced ministers to withdraw a planned £5.
5bn cut to disability benefits this week, on top of earlier concessions on winter fuel payments worth £1.25bn.Reeves has repeatedly promised to stick to her “iron-clad” fiscal rules, which require day-to-day spending to be matched by receipts within five years.This is despite mounting spending pressures and rising debt interest costs.Having committed not to make further large tax increases after last autumn’s budget, the chancellor turned to welfare savings in her spring statement to rebuild the £9.
9bn of headroom against the government’s main fiscal target after a deterioration in the outlook for the government finances.Economists said Reeves could break her fiscal rules unless corrective action was taken in the autumn budget.There is also speculation that the financial hit from Labour’s U-turns could be further complicated by a cut to the growth forecasts of the Office for Budget Responsibility, the Treasury watchdog.Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionBut in a potential boost for the chancellor, the latest snapshot from the S&P Global UK Services PMI showed a sharp rise in private sector activity buoyed by improving business and consumer spending.Concerns remain though about the impact from lingering inflationary pressures, Labour’s tax increases introduced in April and the end of Donald Trump’s 90-day pause in his US tariff plans on 9 July.
Economists said tax increases would probably be required given the challenges Labour has faced in cutting spending, and that ditching the fiscal rules to allow for more borrowing could provoke a sharp reaction in bond markets.Jim Reid, the head of macro and thematic research at Deutsche Bank, said: “For markets, the logic is that Reeves has been a big defender of the fiscal rules, and there have been growing calls for these rules to be eased and for borrowing to go up.So the concern in bond markets is that a new chancellor might trigger a fresh wave of borrowing that pushes rates up further.“Unless we got a big burst of growth before the budget, then the government would need to announce further tax rises or spending cuts if they still want to meet the fiscal rules.So this leaves them in a tricky position.
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‘A billion people backing you’: China transfixed as Musk turns against Trump
Few break-ups have as many gossiping observers as the fallout between the once inseparable Donald Trump and Elon Musk.The ill-fated bromance between the US president and the world’s richest man, which once raised questions about American oligarchy, is now being pored over by social media users in China, many of whom are Team Musk.The latest drama comes from Musk’s pledge to found a new political party, the America party, if Trump’s sweeping tax and spending bill, which Musk described as “insane” passed the Senate this week (it did). Musk had already vowed to unseat lawmakers who backed Trump’s flagship piece of legislation, which is expected to increase US national debt by $3.3tn
AI companies start winning the copyright fight
Hello, and welcome to TechScape. If you need me after this newsletter publishes, I will be busy poring over photos from Jeff Bezos and Lauren Sanchez’s wedding, the gaudiest and most star-studded affair to disrupt technology news this year. I found it a tacky and spectacular affair. Everyone who was anyone was there, except for Charlize Theron, who, unprompted, said on Monday: “I think we might be the only people who did not get an invite to the Bezos wedding. But that’s OK, because they suck and we’re cool
China hosts first fully autonomous AI robot football match
They think it’s all over … for human footballers at least.The pitch wasn’t the only artificial element on display at a football match in China on Saturday. Four teams of humanoid robots took on each other in Beijing, in games of three-a-side powered by artificial intelligence.While the modern game has faced accusations of becoming near-robotic in its obsession with tactical perfection, the games in China showed that AI won’t be taking Kylian Mbappé’s job just yet.Footage of the humanoid kickabout showed the robots struggling to kick the ball or stay upright, performing pratfalls that would have earned their flesh-and-blood counterparts a yellow card for diving
Whitehall’s ambition to cut costs using AI is fraught with risk
A Dragons’ Den-style event this week, where tech companies will have 20 minutes to pitch ideas for increasing automation in the British justice system, is one of numerous examples of how the cash-strapped Labour government hopes artificial intelligence and data science can save money and improve public services.Amid warnings from critics that Downing Street has been “drinking the Kool-Aid” on AI, the Department of Health and Social Care this week announced an AI early warning system to detect dangerous maternity services after a series of scandals, and Wes Streeting, the health secretary, said he wants one in eight operations to be conducted by a robot within a decade.AI is being used to prioritise actions on the 25,000 pieces of correspondence the Department for Work and Pensions receives each day and to detect potential fraud and error in benefit claims. Ministers even have access to an AI tool that is supposed to provide a “vibe check” on parliamentary opinion to help them weigh the political risks of policy proposals.Again and again, ministers are turning to technology to tackle acute crises that in the past might have been dealt with by employing more staff or investing more money
Musk vows to unseat lawmakers who support Trump’s sweeping spending bill
Elon Musk has vowed to unseat lawmakers who support Donald Trump’s sweeping budget bill, which he has criticized because it would increase the country’s deficit by $3.3tn.“Every member of Congress who campaigned on reducing government spending and then immediately voted for the biggest debt increase in history should hang their head in shame! And they will lose their primary next year if it is the last thing I do on this Earth,” he wrote on his social media platform, X.A few hours later he added that if the “insane spending bill passes, the America Party will be formed the next day”.With these threats, lobbed at lawmakers over social media, the tech billionaire has launched himself back into a rift with the US president he helped prop up
Gov.uk smartphone app to launch with limited functionality
A government app intended to “cut life admin” will be free to download by millions of UK citizens from Tuesday, but its functions will be limited and the cabinet minister in charge has admitted: “The design is not as we would like it to be.”The gov.uk app will be accessible on smartphones for people aged 16 and over and is intended to be the main mobile hub for many citizen interactions with the government, although not the NHS or HM Revenue and Customs.Peter Kyle, the secretary of state for science and technology, said the version launched this week would only steer users to existing government webpages, with more functionality to be added by the end of the year.A generative artificial intelligence chatbot trained on 700,000 pages of the gov
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