UK borrowing costs rose on Monday as investors watched for signs of jitters in the markets over Keir Starmer’s future.
The yield, or interest rate, on UK benchmark bonds increased as traders reacted to Sunday’s resignation of the prime minister’s chief of staff, Morgan McSweeney, over the decision to appoint Peter Mandelson as ambassador to Washington.
Yields rose further after the Downing Street communications director Tim Allan resigned on Monday morning.
Long-term borrowing costs touched their highest level since November, after it was reported that Anas Sarwar, the Scottish Labour leader, is to call on Starmer to stand down as prime minister and Labour leader.
With the opposition leader, Kemi Badenoch, saying Starmer’s position was “untenable” after the departure of McSweeney, and the Green party leader Zack Polanski agreeing he should resign, the City of London was weighing up the prime minister’s survival chances, and assessing the impact of likely replacements on the public finances and the economy.
The yield on 10-year UK government debt rose by as much as 7 basis points (0.07 percentage points) to 4.597%, matching a two and a half-month high set last week. The yield on 30-year bonds was eight basis points higher at 5.42%, the highest since 19 November 2025, a week before the autumn budget.
Yields rise when bond prices fall, and indicate the rates at which investors are willing to lend to the government.
The pound dipped by up to half a euro cent against the euro to €1.1460, the lowest in more than two weeks, but was a little higher against the US dollar at lunchtime.
“Movement among government bonds and the currency suggests there is no panic on financial markets about the stability of the UK government,” said Russ Mould, investment director at AJ Bell.
The likely candidates to replace Starmer would be more left-leaning; this implies higher spending and less focus on hitting the UK’s fiscal rules, which would typically be negative for UK government bonds and sterling.
The former deputy prime minister Angela Rayner could take a more tax-and-spend approach, while the Greater Manchester mayor, Andy Burnham, has said Britain should stop being “in hock” to the bond markets.
Capital Economics, the City consultancy, believes gilt yields are likely to rise if Starmer, or the chancellor, Rachel Reeves, are replaced, while the pound would weaken.
“The most likely longer-lasting influence is a loosening in fiscal policy that leads to higher gilt yields than otherwise and a weaker pound than otherwise,” explained Ruth Gregory, deputy chief UK economist at Capital Economics.
The pound rallied against the US dollar in January, but has dipped so far this month.
Neil Wilson, investor strategist at Saxo UK, suggested sterling could face more pressure “should the prime minster cop more heat over his appointment of Peter Mandelson as Britain’s ambassador to the US”. UK government bonds could be vulnerable too.
“Over the weekend, Starmer’s chief of staff, Morgan McSweeney, resigned and took responsibility for advising the PM to appoint Mandelson. Far from drawing a line under things, this seems to have sparked renewed calls for Starmer to do the same.”
“Gilts were steady enough Monday morning but if the bond vigilantes were to sniff the likelihood of a leadership change I’d expect gilts to sell off with sterling also hit as a proxy for investor sentiment towards UK political uncertainty and instability,” Wilson warned.
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