Reeves Cost-of-Living Fiscal Headroom Holds at 5%-Line Resistance as Hezbollah Rejection Lands
Chancellor Rachel Reeves’s cost-of-living package faces a Friday-open macro backdrop where gilt yields hold just above the 5% line at 5.02% as the Hezbollah formal rejection of the Lebanon truce lands. Brent crude eases to $96.80; sterling firms to $1.3405. Friends of Reeves believe there is a world in which she survives a Burnham premiership; the persistent war-risk complicates 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 current trajectory points to a price-cap rise. The Bank of England MPC’s rate-cut path is now uncertain. The Treasury’s fiscal-headroom calculation tightens directly with the gilt-yield holding above 5%. 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”.