Reeves Cost-of-Living Fiscal Headroom Re-Tightens as Gilt Yields Push Back Above 5%
Chancellor Rachel Reeves’s cost-of-living package faces a re-tightened Wednesday-close macro backdrop as gilt yields push back above the 5% line on renewed Iran-deal strain. UK 10-year gilt yields are at 5.02% from the morning 4.98%; Brent crude rose 2% to $96.20. Friends of Reeves believe there is a world in which she survives a Burnham premiership; the Wednesday strain re-engages that calculation. One Labour MP close to Reeves: “The biggest fear for the bond markets and the unions is Ed Miliband.”
The 5p fuel-duty extension cancellation is locked until 31 December 2026. Inflation has slowed to 2.8% — the lowest in over a year — but the Brent rebound above $95 will start to reverse the inflation-easing path through the second half of 2026 if Brent stays elevated. The October Ofgem price-cap reset depends on Brent staying in the $88-95 range through mid-summer. The Bank of England MPC’s rate-cut path is now uncertain again. The Treasury’s fiscal-headroom calculation tightens directly with the gilt-yield re-crossing. UK services PMI weakness adds another layer to the Reeves macro picture. Burnham’s allies have floated Energy Secretary Ed Miliband as his potential chancellor; Reeves’s allies counter that Miliband “would not be trusted by the bond markets”.