UK government borrowing costs climbed on Monday as markets reacted to intensifying pressure on Sir Keir Starmer, with investors pricing in heightened political risk and the possibility of a shift towards more left-leaning Labour policies.
The yield on the benchmark 10-year UK government bond rose by as much as 0.08 percentage points to nearly 4.6 per cent, while yields on 30-year gilts reached their steepest level since November. Bond yields move inversely to prices, meaning the rise reflected a sell-off in gilts.
The move came after Anas Sarwar, leader of the Scottish Labour Party, publicly called on Starmer to step down, triggering speculation over the prime minister’s future. Yields later pared back some of their gains after senior cabinet ministers rallied behind Starmer.
Currency markets were more mixed. Sterling strengthened 0.4 per cent against the dollar to $1.36, while slipping 0.26 per cent against the euro to €1.14. London’s FTSE 100 ended the session 0.16 per cent higher.
Investors appeared to react to concerns that Starmer, under pressure from within his party, could pivot towards more interventionist or higher-spending policies to shore up support from Labour backbenchers. Markets also weighed the prospect of a leadership contest that could elevate figures from the party’s left.
One name increasingly discussed by traders is Angela Rayner, who is seen as sitting to the left of Starmer. Although Rayner was among senior Labour figures to publicly back the prime minister, her potential ascent has unsettled investors wary of a change in fiscal direction. Wes Streeting, associated with Labour’s more centrist wing, is also viewed as a possible contender in any future leadership race.
Kathleen Brooks, research director at XTB, said markets were beginning to reprice UK assets. “A political risk premium is once again being built into UK asset prices, as investors worry about what a new leader could mean for economic policy,” she said.
The gilt sell-off also unfolded against a backdrop of broader volatility in global bond markets following Japan’s general election, though UK-specific political concerns were seen as the main driver.
Speculation around Starmer’s position intensified further after the resignation of his head of communications, Tim Allan, following the weekend departure of chief of staff Morgan McSweeney. The turmoil has been compounded by controversy surrounding the appointment of Lord Mandelson as Britain’s ambassador to the United States, despite warnings over his past association with convicted sex offender Jeffrey Epstein.
For now, markets remain on edge, with investors closely watching whether Labour’s internal strains translate into a change of leadership, or a change of economic course, in the weeks ahead.
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Gilt yields jump as pressure mounts on Starmer amid leadership speculation