Rollercoaster week for the chancellor ends in relief … and a lesson learned that fortunes can change very fast
After a rollercoaster week which began with Keir Starmer being asked if he still had confidence in his chancellor of the exchequer and ended with the stock market smashing all previous records, the sense of relief surging through Downing Street and the Treasury on Friday afternoon bordered on elation.The teams that surround the prime minister and his neighbour at No 11, Rachel Reeves, are made up mainly of untried novices in the hard business of running a government.They are only just learning how quickly moods, including their own, can go from one extreme to the other.“It is weird,” said one.“Truly bloody weird at times.
”When the price of government borrowing had begun to soar 10 days ago due largely to global uncertainties, threatening the very foundations of Reeves’s entire fiscal strategy just six months into government, it felt like this administration’s first real crisis could be round the corner,Young advisers in senior positions admitted privately, at the time, to fearing the worst,But then, as they do in politics, and on the financial markets, things turned suddenly,On this occasion for the better,The Daily Mail and the Tories had catastrophised the government’s bonds and borrowing plight for all it was worth.
On Tuesday morning the Mail called out “Two Lame Ducks”,One of them, it said, was the “flailing” Reeves who was wrecking the economy with her taxes on businesses, while the other was her number two minister Tulip Siddiq, who was facing allegations over her finances and family ties,Both were examples of a chaotic, inept Labour government,The next morning, however, the dystopian view began to look like a hysterical one,First came news that inflation had unexpectedly dipped in December, raising expectations of several interest rate cuts over the coming months.
UK borrowing costs fell and the pound rose.The stock market perked up and would burst through its previous highs later in the week.Then on Friday the International Monetary Fund upgraded its growth forecasts for the UK.Reeves was suddenly and, some observed, somewhat miraculously, back on track.“The UK is forecast to be the fastest growing major European economy over the next two years and the only G7 economy, apart from the US, to have its growth forecast upgraded for this year,” was her chirpy response, which contrasted with her drawn look just days before.
Sign up to ObservedAnalysis and opinion on the week's news and culture brought to you by the best Observer writers after newsletter promotionA senior aide to the prime minister was suddenly able (without any obvious sense of irony) to look back on this extraordinary up and down 10-day ride as a story of seamless and uninterrupted good governance.The centre had “not panicked” but held firm throughout, having stood by Reeves and her punishing budget last October.Unlike the Tories and their “revolving door” of chancellors, who came and went as soon as a prime ministers got nervy, Labour under Starmer was governing differently.“There is an expectation now at Westminster that if things get rocky prime ministers change chancellors but we are a lot more stable as a government.”The same official said that Tulip Siddiq’s eventual resignation, accepted by Downing Street on Tuesday, had been part of this firm grip, this clear authority running through everything.
Her departure had swept away a distraction, with due process having been observed at every stage.Despite this kind of glowing retrospective from the inside, however, hard lessons will have been learned.If the weather could have turned so fast from foul to fair last week, officials and ministers will now know it could do the reverse just as quickly.The changes in economic data that spurred switches in market sentiment and the political mood were tiny.Inflation in December fell by just 0.
1% compared with the previous month,The IMF’s upgrade on Friday for UK growth was up to 1,6% for 2025, from its previous forecast of 1,5%,The recent sudden increase in government borrowing costs, which if repeated and sustained would leave Reeves in serious danger of failing to meet her self-imposed fiscal rules, has already led to a determination in the Treasury to drive through further cuts to departmental budgets over the next year, in order to increase Reeves’s headroom.
The welfare budget is being lined up as the number one target with officials warning that this government “wants people in work not on welfare, and owning homes not claiming housing benefit”.Ministers are warning that there will be “no return to austerity” but for some it may feel like it.With Reform UK on the rise, there are those in Starmer’s team who privately relish a war on benefits.But cuts do not engender growth.The main game in government now to is find ways, across government, to keep costs under control while promoting and stimulating sustainable economic growth, thereby generating higher tax revenues, by building more homes, cutting regulation, resetting the UK’s relationship with the EU and taking the opportunities presented by AI.
Downing Street insists it now has a coordinated growth strategy.The big and immediate fear for those on the inside, however, is the return of Donald Trump to the White House this week.“No one knows what he will do, we just have to be agile and hope,” said one Treasury source.The IMF’s report on Friday contained an explicit warning to Trump and his advisers to resist dramatic policy shifts that would endanger the stability of the US but also the global economy.The IMF’s assessment that the US will maintain its status as the fastest growing G7 economy, with a 2.
7% rate of expansion this year and 2.1% next year, was based on policies adopted by the Biden administration.The IMF chief economist, Pierre-Olivier Gourinchas, said if Trump imposed steep tax cuts this could stimulate growth but at the risk of forcing the US Federal Reserve to prevent an inflationary spiral by raising interest rates, which would have an international ripple effect.He also warned about the tariffs Trump has threatened to impose on imports into the US, including, potentially, those from the UK: “An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows and again disrupt supply chains.Growth could suffer in both the near and medium term, but at varying degrees across economies.
”Inside No 10 and the Treasury they have got through a difficult week, but they will know that amid such global economic uncertainty they could face many more in the months and years to come.
Sabalenka ‘finds way out’ with final-set escape against Pavlyuchenkova
After coming as close to defeat here as she has for three years, trailing by a break in the nerve-racking final set of her quarter-final, Aryna Sabalenka drew on her unshakable mental toughness to find a way through with a 6-2, 2-6, 6-3 win over Anastasia Pavlyuchenkova.The No 1 seed and two-time defending champion extended her winning streak at the Australian Open to 20 matches and she has now won 29 of her past 30 matches in Australia. Sabalenka, who is 10-0 in 2025, had won 25 consecutive sets in Melbourne until Tuesday night.Sabalenka’s consistency at the grand slams has been second to none. She has reached the semi-finals in eight of her past nine major tournaments, her only loss coming in the quarter-finals of the French Open last year when she was suffering from an illness
Jos Buttler says England boycott of Afghanistan fixture ‘not the way to go’
Jos Buttler believes England should play Afghanistan at next month’s Champions Trophy in Pakistan despite calls for a boycott in response to the Taliban regime’s treatment of women. A group of more than 160 parliamentarians signed a letter this month addressed to the England and Wales Cricket Board’s chief executive, Richard Gould, urging the governing body to consider a boycott of the match against Afghanistan, to be played on 26 February in Lahore.Women were banned from participating in sport after the Taliban regained power in 2021, forcing the Afghanistan women’s cricket team to flee the country.The letter, written by the Labour MP Tonia Antoniazzi, urged the England men’s cricket team “to speak out against the horrific treatment of women and girls in Afghanistan under the Taliban”. Gould subsequently wrote to the International Cricket Council urging the body “to intervene and show global leadership” in response to “the gender apartheid facing the 14 million women in Afghanistan”
Donald Trump’s return to power lays bare the lie that sports don’t matter | Jules Boykoff
Ahead of Donald Trump’s victory in the 2024 presidential election, Maga doubters abounded. It wasn’t just pollster J Ann Selzer’s infamous whiff in Iowa where Kamala Harris supposedly leapfrogged Trump on the eve of the election. One Democrat official in the battleground state of Pennsylvania went as far as to claim, “The Republicans, they really didn’t have a ground game.”Others derided Trump’s ground game as subpar and vibes-based, for gambling on infrequent voters, for outsourcing operations to private groups like Elon Musk’s America Pac. In doing so, these critics overlooked conservative groups’ investment in spaces not typically viewed as electoral or even political
Will Jayden Daniels and the Commanders continue their fairytale playoff run?
The Philadelphia Eagles boast a formidable defense. But the rookie quarterback’s eerie calm could cause another upsetNow that the Washington Commanders have achieved the highly unlikely by upsetting the NFC’s one-seed Detroit Lions with a decisive 45-31 win in the divisional round of the playoffs, it’s time to ask if the team, who haven’t been to a Super Bowl since the end of the 1991 season, can do so again.If that’s to happen, the Commanders and their rookie quarterback, Jayden Daniels, will have to get past the Philadelphia Eagles, their NFC East neighbors and the conference’s two-seed.To set the stage more specifically, we can look to the two games the Commanders and Eagles played in the regular season – a 26-18 win for the Eagles in Week 11, and a 36-33 Washington win in Week 16. The Week 11 game was an oddity in that Daniels was recovering from rib injuries that affected his play, especially as a runner
The Breakdown | France’s star turns primed to convert club form into Six Nations success
If last weekend’s Champions Cup performances are anything to go by, France’s stars are arriving at the Six Nations this year at the peak of their powers. In both Bordeaux’s pummelling of the Sharks and Toulouse’s dismantling of Leicester, the France stalwarts led the way – from Damian Penaud’s double hat-trick of tries to Antoine Dupont’s now-customary multipositional display, with a resurgent Romain Ntamack by his side and Thibaud Flament excelling across all areas of the pitch.Given they provide the bulk of the national team starters, the fact that the Top 14’s top two teams are leading the way on the continental stage (but unfortunately cannot meet in the final) will only provide even more momentum for a resurgent XV de France.The post-World Cup hangover which initially blighted last year’s Six Nations performances has now largely subsided, with the three wins during the autumn internationals showing Les Bleus back at their pre-autumn 2023 best – in particular in a slender win against New Zealand.While too early to have any definitive impact on squad selection for 2027, this year’s tournament could nevertheless be one for the XV de France record books
College Football Playoff National Championship Game: Ohio State 34-23 Notre Dame –as it happened
Thank you!Thant concludes our coverage of the big college football game! Congratulations to OSU! They win their first national title since 2014.Thank you for joining us, and wherever you are, good morning, good afternoon or goodnight!The Ohio State Buckeyes are the 2025 National Champions! They complete a four-game sweep of the playoff and are the inaugural 12-team playoff title winners! They are also the very first two-loss national champs in division one college football history.Buckeyes 34-23 Irish, 0:18 4th quarterLove has a short completion but is dropped for two yards.Jayden Fielding kicks a 33-yard field goal and that will seal the national title for OSU!Buckeyes 31-23 Irish, 0:29 4th quarterHoward keeps it for a short loss. So it’s fourth down and OSU call time
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