Downing Street has insisted that Rachel Reeves will be the chancellor “for the whole of this parliament” as speculation mounted that Sir Keir Starmer may sack her.
The vote of confidence came on Monday afternoon after Sir Keir had appeared reluctant to back the beleaguered Ms Reeves.
He told journalists that she has his full confidence and is doing a fantastic job, but avoided the question the first time it was asked and then dodged questioning over whether his chancellor will still be in post at the next election.
The prime minister’s remarks came amid mounting pressure on Ms Reeves as the value of the pound fell and government borrowing costs remained high.
While he defended the chancellor’s handling of the economy, he declined to guarantee she would remain in No 11 for the duration of the parliament.
The pound fell to a fresh 14-month low on Monday, slumping another 0.6 per cent to $1.21 after last week hitting its lowest level against the dollar since November 2023. UK government bonds – also known as gilts – continued to see 10-year yields hit fresh highs not seen since 2008, at 4.9 per cent.
Answering questions following a speech on the government’s plan for artificial intelligence in London the prime minister stressed that the Treasury will meet its fiscal rules – including requiring day-to-day spending to be met from revenues rather than further borrowing.
But rising borrowing costs eat into the funding available, which could force Ms Reeves to act to either reduce spending or raise taxes to comply with her fiscal rules when the Budget watchdog gives its updated forecast in March.
Asked to give a yes or no answer on whether or not the chancellor will still be in post at the next election, Sir Keir said the UK will “stick to the fiscal rules”, adding: “I’m confident in our mission for growth, and I’m confident, completely confident, in my team.
“We never pretended, nor would anybody sensibly argue, that after 14 years of failure, you can turn around our economy and our public services before Christmas.”
Pressed again on whether or not Ms Reeves would still be in post when the country goes to the ballot box for a general election, the prime minister said: “Rachel Reeves is doing a fantastic job. She has my full confidence. She has the full confidence of the entire party.”
It comes as the chancellor, who is flying back from a trip to China on Monday, faces a new serious warning as Deloitte reported that business bosses’ confidence is at one of its lowest points since the Covid pandemic in 2020.
After suffering a barrage of criticism for going ahead with her controversial trip to Beijing, the chancellor is being told that her management of the economy is under question from some of the country’s biggest companies.
According to the survey of 63 chief finance officers (CFOs) at major companies, a net 26 per cent reported feeling more pessimistic about the prospects of their business than three months ago, marking the first time sentiment has tipped into negative territory since the second quarter of 2023.
While confidence is still above the lows of 2020 and Liz Truss’s mini-Budget in 2022, 58 per cent expect UK corporates to cut discretionary spending, and a net -64 per cent expect increases in hiring, which is a four-year low.
The figures appeared to underline a crisis in confidence in the Labour government to deliver on its number one mission of economic growth and they came as Tory leader Kemi Badenoch warned that the chancellor appears to be “hanging on by her fingernails”.
Referencing Sir Keir’s comments, she said: “The prime minister just refused to back his chancellor staying in her job.
“Keir Starmer and Rachel Reeves have driven Britain’s economy into the ground. The markets are in turmoil and business confidence has crashed, yet the chancellor is nowhere to be seen.”
Behind the scenes, Ms Reeves is said to be battling to prove the government’s economic plan is working, reportedly ordering cabinet ministers to be “ruthless” in identifying public spending cuts.
An internal letter from the Treasury about Ms Reeves’s spending review, seen by The Telegraph, admits that difficult decisions on budgets will be needed and emphasised that “growth is the only way that we can deliver better outcomes in public services, without raising taxes on working people and is our primary mission for this parliament”.
“Spending review 2025 cannot be a business-as-usual spending review”, the letter warns. “Success will require ruthless prioritisation.”
The prime minister signalled his intention to pull every lever possible to boost growth in his Stratford speech on Monday, where he said artificial intelligence could help “turn around the economy”.
Sir Keir pledged to make Britain an AI superpower, warning that the “battle for the jobs of tomorrow is happening today”.
We are in the “global race of our lives” for leadership on artificial intelligence, the PM said, adding: “Some countries are going to make AI breakthroughs and export them. Others will end up buying those breakthroughs and importing them”, Sir Keir said.
“The question is, which of those will Britain be – AI maker or AI taker?”
He added: “Mark my words, Britain will be one of the great AI superpowers”
The prime minister continued: “I would argue that we would do it in any event, whatever the state of the economy and public services, because it’s obviously the right direction to go in, but it’s doubly necessary because of the mess we’ve inherited from the last government.
“So we will use it to turn around the economy, and use it to turn around our public services.”