Gilt yields jump as pressure mounts on Starmer amid leadership speculation

UK government borrowing costs rose on Monday as markets reacted to increased pressure on Sir Keir Starmer, with investors pricing in political risk and the possibility of a shift to left-leaning Labor policies.

The 10-year UK government bond yield rose 0.08 basis points to around 4.6 percent, while the 30-year yield hit its highest level since November. Bond yields move inversely with prices, meaning the rise has reflected a sell-off in gilts.

The move came after Anas Sarwar, leader of the Scottish Labor Party, publicly called for Starmer to step down, sparking speculation about the prime minister’s future. The yield later clawed back some of its gains after senior cabinet ministers rallied behind Starmer.

Currency markets were very mixed. Sterling strengthened 0.4 percent against the dollar to $1.36, while it fell 0.26 percent against the euro to €1.14. London’s FTSE 100 ended the session 0.16 percent higher.

Investors appeared to be reacting to concerns that Starmer, under pressure from his party, could turn to interventionist or high-spending policies to win support from Labor backbenchers. Markets have also weighed in on the possibility of a leadership contest that could boost figures on the party’s left.

Another name being talked about a lot by auctioneers is Angela Rayner, who is seen sitting to the left of Starmer. Although Rayner has been among the top Labor figures to publicly back the prime minister, his possible rise has disgruntled investors wary of a change in financial direction. Wes Streeting, who is associated with a more conservative Labor wing, is also seen as a potential contender in any future race.

Kathleen Brooks, director of research at XTB, said markets are starting to price in UK assets. “A political risk premium has been built back into UK asset prices, as investors worry about what the new leader might say about economic policy,” he said.

The gilt sell-off also came amid broader volatility in bond markets around the world following Japan’s general election, although UK-specific political concerns were seen as a key driver.

Speculation about Starmer’s position has intensified after the resignation of head of communications, Tim Allan, following the weekend departure of chief of staff Morgan McSweeney. The chaos was further compounded by the controversy over the appointment of Lord Mandelson as Britain’s ambassador to the United States, despite warnings about his association with convicted sex offender Jeffrey Epstein.

For now, markets are still on hold, as investors watch whether Labour’s internal problems translate into leadership, or a change in economic course, in the coming weeks.