UK borrowing costs surge as Starmer leadership crisis rattles bond markets

The UK’s long-term borrowing costs have hit their highest level since 1998 as widening cracks in the premiership of Sir Keir Starmer fuel a bond sell-off that is piling pressure on the public finances.

Thirty-year gilt yields reached 5.8 per cent in morning trading after rising as much as 0.13 percentage points, the highest level this century and above the level reached last week in anticipation of a disastrous set of local election results for the ruling Labour Party.

A second consecutive day of selling was sparked by pressure from cabinet ministers on Starmer to consider his position, with the prime minister also suffering a string of resignations by parliamentary private secretaries and a growing number of MPs calling on him to quit.

The pound fell 0.7 per cent against the dollar on Tuesday morning to $1.352, and was 0.3 per cent lower against the euro at €1.175.

“A drawn-out leadership process will be very off-putting to foreign investors — buying now is stepping on to a rollercoaster,” said Gordon Shannon, a fund manager at TwentyFour Asset Management.

Benchmark 10-year gilt yields were also within touching distance of their highest level since 2008 on Tuesday morning, rising 0.1 percentage point to 5.1 per cent.

“The latest developments increasingly look like the end of the road for Keir Starmer as prime minister,” said Lee Hardman, senior currency analyst at MUFG. “A leadership contest . . . will add to political uncertainty in the near term which is negative for the pound and gilts.”