UK Labour leadership challenge: Starmer rivals line up
Prime Minister Sir Keir Starmer gives a speech at the Coin Street Neighborhood Center in Waterloo, London.
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Bond traders are bracing for further instability in the UK as Prime Minister Keir Starmer’s grip on power could be formally challenged by his rivals on Thursday.
Health Secretary Wes Streeting is expected to resign to launch a leadership bid, while Starmer’s former aide Angela Rayner He was reportedly cleared of intentional wrongdoing on tax affairs, raising hopes for another potential leadership bid.
Supporters of popular third contestant, Manchester Mayor Andy Burnham he said he would press Labour’s governing body needs to extend the timeline for upcoming leadership elections so it can gain seats in parliament to run for leadership.
The Labor Party leadership election can only be triggered if the leader resigns or 20 per cent of MPs nominate a candidate; This means 81 Labor MPs must support an individual proposal.
Competing leadership bids could divide MPs over who to back to replace Starmer, who has vowed to continue the fight.
While Streeting is seen as more of a continuity candidate, Rayner and Burnham lean more to the left; This rattled UK bond markets and caused borrowing costs to rise; Investors feared that a more left-leaning prime minister could herald more borrowing, public spending and higher debt.
Everyone is smiling: British Prime Minister Keir Starmer, British Chancellor of the Exchequer Rachel Reeves (L) and British Health Secretary Wes Streeting (C), July 3, 2025.
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When bond markets opened on Thursday morning, the yield on the benchmark 10-year bond (or gilt bond, as it is known in the UK) was down 3 basis points at 5.040%, while the yield on the 30-year bond was hovering around 5.759%.
UK bond yields at their current levels were a reflection of the uncertainty around the UK.
“Not only did we have inflation coming out of the Middle East and rising oil prices, but we also had leadership uncertainty,” BlackRock Global Fixed Income EMEA head James Turner told CNBC on Thursday.
“Everything looks aligned for a leadership race that will unsettle bond investors,” said Saxo UK investor strategist Neil Wilson.
“Health Minister Wes Streeting has a big decision to pull the trigger on today. This has been a volatile week for gold markets and I expect that to continue, with yields hitting multi-decade highs, possibly in the event of a leadership contest,” he said in emailed comments on Thursday.
Good news, bad timing
The government received rare good news early Thursday; growth data shows that: The economy grew by 0.6 percent in the first quarter.
But it will come as cold comfort to investors that the Iran war, global energy crisis and domestic political crisis have combined to further complicate the outlook for the economy, inflation and growth.
“It is difficult to see this first quarter momentum being sustained through the rest of the year due to increasing uncertainty at home and abroad,” Scott Gardner, investment strategist at J.P. Morgan Personal Investing, said via email on Thursday.
View towards the Bank of England in the City of London along Threadneedle Street on February 25, 2026 in London, United Kingdom. The Bank of England is the central bank of England and is responsible for setting interest rates.
Mike Kemp | In pictures | Getty Images
He added: “The first quarter has shown that strong economic growth is possible in the UK, but many will not be convinced that this momentum can be sustained throughout this year. “The risk is that the rise in energy prices following the start of the Iran conflict will continue, leading to a rebound in inflation.
“This will be especially painful for businesses and consumers who have faced high prices and high interest rates for years.”
