What's happened
UK government bond yields increased on Monday as investors reacted to political turmoil surrounding Prime Minister Keir Starmer's leadership. Resignations over controversial appointments and calls for his resignation have heightened market jitters, with long-term borrowing costs reaching their highest since November. The pound also dipped against the euro amid concerns over political stability.
What's behind the headline?
Political instability is now directly impacting UK financial markets. The rise in gilt yields and the pound's dip reflect investor concerns over potential leadership changes and fiscal policy shifts. The appointment of Mandelson, linked to Epstein, has intensified scrutiny of Starmer's judgment, leading to calls for his resignation from opposition figures and some within his party. The market's reaction suggests that a leadership change could lead to looser fiscal policy, higher borrowing costs, and a weaker pound. Capital Economics forecasts that replacing Starmer or the chancellor could result in sustained increases in gilt yields and further currency depreciation. This situation underscores how political uncertainty can swiftly translate into economic volatility, with potential long-term implications for UK fiscal stability and investor confidence.
What the papers say
The Guardian reports that bond yields rose as investors watched for signs of jitters over Starmer’s future, with long-term borrowing costs reaching their highest since November. Reuters highlights that Starmer's chief of staff resigned over the Epstein-linked appointment, fueling leadership speculation and market uncertainty. Both sources emphasize that political turmoil is causing market volatility, with analysts warning of potential increases in gilt yields and a weaker pound if leadership changes occur. The Guardian notes that the market is not panicking but remains sensitive to political developments, while Reuters points out that the appointment controversy has intensified calls for Starmer's resignation, impacting investor sentiment.
How we got here
The recent resignations within the UK government, including Starmer's chief of staff Morgan McSweeney and communications director Tim Allan, followed controversy over the appointment of Peter Mandelson as ambassador to the US. Critics questioned Starmer's judgment, especially given Mandelson's links to Jeffrey Epstein. These events have fueled speculation about Starmer's leadership and potential leadership challenges, impacting investor confidence and financial markets.
Go deeper
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Sir Keir Rodney Starmer KCB QC MP is a British politician and former lawyer who has served as Leader of the Labour Party and Leader of the Opposition since 2020. He has been Member of Parliament for Holborn and St Pancras since 2015.
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Peter Benjamin Mandelson, Baron Mandelson PC is a British Labour politician, president of international think tank Policy Network, honorary president of the Great Britain–China Centre, and chairman of strategic advisory firm Global Counsel.
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Jeffrey Edward Epstein was an American financier and convicted sex offender. He began his professional life as a teacher but then switched to the banking and finance sector in various roles, working at Bear Stearns before forming his own firm.
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Morgan James McSweeney (born 19 April 1977) is an Irish political strategist for the British Labour Party. He served as Downing Street Chief of Staff under Prime Minister Keir Starmer from October 2024 until his resignation in February 2026. A close colle