Political turmoil inside Labour spilt into financial markets on Monday, with gilt yields rising after Sir Keir Starmer failed to calm bond‑market fears over a potential leadership challenge.
UK Government borrowing costs climbed as investors reacted to intensifying speculation over Starmer’s future.
The yield on 10‑year gilts rose 0.05 percentage points to 4.97 per cent, while 30‑year yields increased by more than five basis points to 5.64 per cent.
Bond investors have become increasingly concerned a Labour leadership contest could unleash pressure for higher public spending and increased borrowing.
Yields had briefly eased on Friday after Starmer insisted he would “not walk away” following Labour’s bruising local election results. Last week, gilt yields touched 5.11 per cent, their highest level since 2008.
The market reaction came as Labour infighting deepened.
Backbench MP Catherine West pressed ahead with efforts to force Starmer from Downing Street, beginning to collect signatures from Labour MPs demanding he commit to stepping aside by September after the party’s disappointing local election performance.
Ms West said Sir Keir’s speech earlier on Monday had been “good”, but argued it did not outweigh the message sent by voters last week.
Pressure mounted on Sir Keir Starmer after Labour MPs began collecting signatures demanding he step down by September
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She had initially threatened to launch an immediate leadership challenge over the weekend if Cabinet ministers failed to intervene.
After hearing the Prime Minister’s address, she shifted towards securing support for a timetable for his departure rather than mounting a direct contest.
Under Labour rules, any formal leadership challenge would require the public backing of 81 MPs.
Pressure intensified further after Angela Rayner criticised the party’s direction during a speech at the CWU communications union conference in Bournemouth.
The 10-year gilt has risen above five per cent as markets react to the speech
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Marketwatch
“What we’re doing isn’t working, and it needs to change,” she said, urging Labour to reconnect with working‑class voters and become “the party for working people”.
Ms Rayner said Sir Keir had acknowledged public frustration but warned Labour would “be judged on actions and not just our words”.
She also criticised the decision to block Andy Burnham from returning to Westminster, calling it “a mistake that the leadership of our party should put right”.
Mr Burnham, Mayor of Greater Manchester, has long been viewed as a potential future leader, while Rayner herself is seen as a possible challenger.
Market nerves were compounded by developments in the Middle East after Donald Trump rejected an Iranian peace proposal.
Brent crude rose four per cent to $105.33 per barrel amid concerns over continued disruption in the Strait of Hormuz. “I don’t like it TOTALLY UNACCEPTABLE,” Trump wrote on Truth Social.
The Strait of Hormuz previously handled around a fifth of global oil and gas shipments, and its continued disruption has heightened fears over inflation and slowing global economic growth.
Higher oil prices provided some support for the FTSE 100, which rose 0.2 per cent on Monday as energy stocks gained ground.
The crisis in the Middle East is expected to dominate discussions during Trump’s upcoming visit to Beijing later this week.