UK government borrowing costs surge as PM Starmer pressured to quit

Yields on U.K. government bonds surged to multi-decade highs on Tuesday morning, as pressure mounted on Prime Minister Keir Starmer to resign from his post.

By 11:15 a.m. in London, the yield on the benchmark 10-year gilt had jumped 10 basis points to trade at around 5.101%, easing from bigger rises seen earlier in the trading session. Bond yields and prices move in opposite directions.

Meanwhile, yields at the long end of the curve touched on their highest since 1998, with yields on 20-year and 30-year gilts jumping 10 basis points higher.

Starmer’s leadership is on a knife edge after more than 70 Labour lawmakers called for his resignation.

The calls for Starmer to resign came after the Labour Party suffered major losses in local council elections last week.

While the election result will not change the composition of Britain’s parliament or its government, some lawmakers have argued the outcome was a protest from the electorate against Starmer’s policy mix.

The prime minister held a routine meeting with his cabinet on Tuesday morning. According to the U.K.’s Guardian newspaper, Starmer told cabinet members that he will not step down, reiterating the position he set out in the aftermath of Thursday’s elections.

Work and pensions minister Pat McFadden told reporters after the meeting that no one had challenged Starmer’s leadership during the meeting, according to news agency Reuters.

Labour has a process for challenging a leader and “that has not been triggered,” he reportedly said. “The country expects us to get on with governing. That is what I am doing and what we must do as a cabinet.”

Without Starmer’s resignation, a Labour leadership challenge — which would determine Starmer’s fate as leader of the governing party — can only be triggered if 20% of Labour MPs back a challenger. Currently, that means 81 Labour MPs would need to back a potential replacement.

Growth and living standards have stagnated in the U.K. in recent years, with the country facing a cost-of-living crisis in the wake of the Covid pandemic and the Russia-Ukraine conflict.

Starmer’s Labour Party has faced growing public anger at the slow pace of economic reforms, with Thursday’s vote seeing huge gains for the right-wing Reform UK and the left-wing Green Party.

But bond vigilantes have largely been supportive of Starmer and Reeves retaining their positions relative to potential alternatives, with U.K. bonds selling off in previous bouts of uncertainty over their political futures.

Last July, yields on gilts surged after Reeves was seen crying in parliament, amid reports that her role in Starmer’s cabinet was in jeopardy. It came after the government U-turned on her proposed welfare cuts following a rebellion from Labour politicians.

Health Minister Wes Streeting, former…