UK long-term borrowing costs reached their highest level in almost 30 years, spurred by investor anxiety over potential shifts in Labour’s fiscal policies amidst leadership uncertainties. The interest rate on 30-year government bonds surged by 11 basis points to 5.794% on Tuesday morning, a peak not seen since May 1998. This rise came amid speculation about Labour leader Keir Starmer’s future following significant losses in recent local and devolved elections.
The bond yields experienced a modest decline after Prime Minister Keir Starmer addressed the cabinet on Tuesday morning, affirming his intention not to resign and clarifying that no leadership challenge process had been initiated. This statement followed the resignation of Miatta Fahnbulleh, marking the first ministerial departure since the electoral setbacks. Fahnbulleh urged Starmer to step down, intensifying the leadership debate within the party.
Starmer, emphasizing stability, stated, “The Labour party has a process for challenging a leader and that has not been triggered. The country expects us to get on with governing. That is what I am doing and what we must do as a cabinet.” His declaration came as part of efforts to reinforce his leadership amidst the turmoil.
In a show of solidarity, several cabinet ministers, including Business Secretary Peter Kyle, Technology Secretary Liz Kendall, and Housing Secretary Steve Reed, publicly expressed their support for Starmer. Their backing seemed to alleviate some of the financial market tensions, as the benchmark 10-year yield on UK government bonds eased to below 5.1%, after peaking at 5.13% earlier in the day. Similarly, the 30-year yield fell to 5.76% from its 28-year high of 5.81%.