Prime Minister Keir Starmer is facing a rebellion from within his own party following large losses in local elections last week. More than 70 MPs have publicly called for him to go, and cabinet ministers are urging him to quit. Starmer is currently consulting colleagues ahead of a crucial cabinet meeting on Tuesday morning, while Darren Jones stated the Prime Minister is listening to colleagues and did not rule out the announcement of a resignation timetable.
The potential change in leadership has unsettled investors, sending UK government bond yields to their highest levels in nearly three decades. Yields on 30-year gilts have reached their highest point since 1998, and the benchmark 10-year gilt yield rose eight basis points to 5% on Monday. The pound has fallen against the dollar as fiscal concerns mount and a recent speech by Starmer failed to dispel market jitters.
This political drama is adding pressure to a bond market already battered by deep-rooted fiscal and economic problems and fears of rising inflation. Investment bank Jefferies has identified a managed exit for Starmer as the base case scenario. Economist Mohit Kumar told clients that any replacement would likely be left-leaning, which would be negative for the pound and longer-dated government bonds.