UK government borrowing costs surge as PM Starmer pressured to quit
British Prime Minister Keir Starmer speaks at the start of a Cabinet meeting to mark the fourth anniversary of Russia’s full-scale invasion of Ukraine in Downing Street, London, on February 24, 2026.
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UK government bond yields rose to multi-year highs on Tuesday morning as pressure grew for Prime Minister Keir Starmer to resign from his post.
Benchmark bond yield as of 10:20 a.m. in London 10 years gilded It traded around 5.121%, up 12 basis points. Bond yields and prices move in opposite directions.
Meanwhile, yields on the long end of the curve have reached their highest level since 1998. 20 years gilded while its return adds 13 basis points 30 years old Yields rose 12 basis points.
UK 20 and 30 year gilts
Starmer’s leadership was on a knife edge after more than 70 Labor MPs called for his resignation.
Calls for Starmer to resign come after Labor suffered huge losses in last week’s local council elections.
Although the election result will not change the makeup of the British parliament or government, some MPs argued that the result was a protest from voters against Starmer’s policy mix.
The Prime Minister held a routine meeting with his cabinet on Tuesday morning. According to Britain’s Guardian newspaper, Starmer reiterated the stance he put forward after Thursday’s elections, telling cabinet members that he would not resign.
Labor has process to challenge a leader and ‘this has not been triggered’ reportedly in question. “The country expects us to continue governing. That’s what I do and that’s what we need to do as a cabinet.”
Without Starmer’s resignation, the Labor leadership fight that will decide Starmer’s fate as leader of the ruling party could only be triggered if 20 per cent of Labor MPs back his challenger. Currently this means 81 Labor MPs would need to support a potential amendment.
Growth and living standards in the UK have stagnated in recent years; The country faced a cost of living crisis in the wake of the Covid pandemic and the Russia-Ukraine conflict.
Starmer’s Labor Party has faced growing public anger over the slow pace of economic reforms; The right-wing Reform England and the left-wing Green Party made big gains in Thursday’s vote.
But bond advocates largely support Starmer and Reeves maintaining their positions over potential alternatives; UK bonds have been selling off during previous periods of uncertainty about their political future.
Yields for the gilts soared last July after Reeves was seen crying in parliament, amid reports that his role in Starmer’s cabinet was in jeopardy. It comes after the government made a U-turn on proposed benefit cuts following an outcry from Labor politicians.
Health Secretary Wes Streeting, former Deputy Chancellor Angela Rayner and Manchester Mayor Andy Burnham are reportedly among the candidates to replace Starmer. Rayner and Burnham, who is currently ineligible for the post of prime minister because he does not have a seat in parliament, are generally considered more left-leaning than Starmer.
How are bond markets reacting to the ‘Starmer drama’?
Matthew Ryan, head of market strategy at financial services firm Ebury, said in a note Tuesday morning that bond markets had made up their minds about the situation unfolding in Westminster and “it’s not pretty.”
“The bond vigilantes are in full force, with long-term yields jumping to the highest levels in nearly three decades,” he said. “Investors are adding a significant political risk premium to UK assets, fearing both a change in the status quo and a rise in gilt issuance under a more left-leaning prime minister.”
Jordan Rochester, head of FICC’s EMEA strategy at Mizuho Bank, described the political tensions as the “Starmer drama” in a note on Tuesday – but said the prime minister could hold on to his position for a while longer.
“Starmer can survive until 2027, Boris [Johnson] “It has lasted much longer than some expected at the time,” he said. “But the momentum is shifting against Starmer; This is more like the example of Theresa May resigning a few weeks after poor local elections in 2019. “The writing is on the wall for most at this stage, it’s just a matter of how quickly the exit happens.”
Starmer is the UK’s sixth prime minister in the last decade; His predecessors were also in the squad at that time May and Johnson resigned before the end of their terms in office after pressure from MPs.
In a note published Monday evening London time, strategists at Citi said the market impact of sacking Starmer could go beyond higher government borrowing costs.
Citi’s team said recent developments set the stage for a leadership struggle, which could trigger “a leftward shift in Labor policies and more expansionary fiscal policy.”
“We foresee risks heading towards higher Gilt yields and a weaker GBP,” they said, adding that this would also negatively impact domestically focused FTSE 250 companies but could benefit internationally active FTSE 100 constituents.
But they warned that, in their view, current yields did not fully price an immediate leadership challenge.
“A credible challenge could trigger a bear hardening in yields, which could lead to increased volatility and potentially push 10-year Gilt yields to 5% to 5.25% or higher,” they said.
