Reeves Cost-of-Living Fiscal Headroom Stays Tight as Gilt Yields Hold Above 5%
Chancellor Rachel Reeves’s cost-of-living package faces a tight Thursday macro backdrop as gilt yields hold above the 5% line at 5.03%. Brent crude is steady at $96.50; UK services PMI weakness from Wednesday continues to weigh. Friends of Reeves believe there is a world in which she survives a Burnham premiership; the macro tightening complicates that calculation. One Labour MP close to Reeves: “The biggest fear for the bond markets and the unions is Ed Miliband.” Burnham’s allies have floated Energy Secretary Ed Miliband as his potential chancellor.
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 holding above 5%. Reeves’s allies counter that Miliband “would not be trusted by the bond markets”.