Borrowing costs soared today, while the FTSE 100 plunged into the red as the Prime Minister’s future hung in the balance.
Starmer has vowed to stay on, even after he was reportedly told by ministers to set out a timetable for his resignation. It comes after more than 80 MPs have called for him to go.
His reset speech on Monday failed to convince both his MPs and the bond market yesterday, with ten-year gilts trading at 5.006 per cent, while 30-year gilts reached 5.67 per cent.
This afternoon, borrowing costs soared with 10-year gilt yields climbing to 5.1 per cent, while 30-year gilts are trading at 5.79 per cent.
Centrist Wes Streeting, who is widely expected to mount a challenge, will be preferred over Andy Burnham, who is likely to preside over a lurch to the Left.
But investors are wary that any successor to Starmer could increase borrowing. Further uncertainty in the face of rising inflation and interest rate expectations is pushing the cost of government borrowing higher.
Meanwhile, oil prices climbed to $105 a barrel on fears of a return to a full escalation of the war. Donald Trump said the ceasefire with Iran was ‘unbelievably weak’ and on ‘massive life support’, sending markets lower.
Asian equities were mixed, with the Nikkei up 0.4 per cent, Hong Kong’s Hang Seng Index flat and India’s Sensex down 1.1 per cent. The FTSE 100 plunged over 100 points at the open, before settling down around 50 points.
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US inflation climbs on higher oil prices
The UK isn’t the only country with an inflation problem, as the Middle East conflict pushes prices higher.
US inflation rose to 3.8 per cent in the 12 months to April, ahead of expectations, driven by higher oil and petrol prices.
Markets are still pricing in the Federal Reserve to leave rates unchanged, but that could soon change.
‘With Kevin Warsh set to take up the chairmanship imminently and the June meeting nearing, the Fed is reaching something of a fork in the road,’ said Lindsay James, investment strategist at Quilter.
Volatility is here to stay
At lunchtime, the yields on government bonds remain elevated but have fallen back slightly from this morning.
The 10-year gilt yield is up 10 basis points to 5.09 per cent over the day, while the 30-year is up 9 bps at 5.76 per cent.
The FTSE 100 is unmoved, trading down 50 points.
Economists predict that these elevated yields are here to stay as markets perceive inherent risks in the UK.
‘Even if short-end pressures fade, the long end will likely remain elevated, causing the curve to steepen,’ says Oxford Economics’ chief UK economist Andrew Goodwin.
‘Term premia could rise further because fiscal slippage looks more probable, either via Prime Minister Keir Starmer’s attempts to regain popularity, or, more likely, from a successor implementing more costly left-wing economic policies.
‘If Starmer sets out a timetable to stand down, the uncertainty premium will persist.’
On The Beach says there are bargain holidays to be found
In less gloomy news, updates from On The Beach and Wizz Air suggest there are bargain holidays to be found as they slash prices amid a slump in demand.
Starmer vows to stay on as PM
Starmer has vowed to stay on as Prime Minister, even as growing number of MPs call on him to resign.
He told the Cabinet that there is a ‘process for challenging a leader and that has not been triggered.’
Bonds continue their sell-off, with 10-year gilt yields up 12 basis points to 5.12 per cent, while the 30-year gilt yield has climbed 13 basis points to 5.8 per cent.
For context, that is well ahead of European peers. Germany’s equivalent 10-year yield is up 4 basis points.
The FTSE 100 has recovered some of this morning’s losses, but remains down 50 points at 10,218.
‘Fiscal crisis looms’
Chris Beauchamp, Chief Market Analyst UK says: ‘There is no clear plan for what comes next, but markets are already pricing in a new PM who will open the floodgates on spending despite the UK’s dangerous fiscal situation.
‘Faced with hordes of Labour MPs worried about their re-election chances as Reform surges, a new PM will find it very hard to resist calls to spend more money in order to shore up their embattled party.
‘Much of the case for the UK as an investment destination rested on the Starmer/Reeves commitment to fiscal rectitude, but it is unlikely that a new leader from the left of the party would feel bound by such promises.’
Bond rout could go further
Long-dated gilt yields are reaching a 28-year high as it becomes near-on inevitable that the Prime Minister will resign, or set out a timetable to do so.
‘We could see a blowout in longer-dated gilts if this turns into a dogfight– political, fiscal and inflationary risks will rise,’ says Neil Wilson of Saxo. ‘Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier.’
EQT tables fourth takeover bid for Intertek
Shares of product testing firm Intertek are up over 5 per cent to 5,245p after Swedish private equity firm EQT tabled its final takeover proposal.
EQT has offered a final proposal of £60 per share in cash and a possible 107.7p dividend, after three of its earlier bids were turned down.
Last week, it offered £58 in cash per share from £54, having first offered £51.50 in early April.
Vodafone swings to a profit as turnaround gets underway
Vodafone has swung to an annual profit of €1.86billion (£1.61bn) for the year to March after revenues jumped 8 per cent.
The telecoms giant’s pre-tax profits compare with losses of €1.48billion (£1.28bn) the previous year.
It said that it had started a ‘new chapter’ after simplifying the business, which included asset sales in Italy and Spain.
Analysts say that Vodafone’s update shows promising signs of a turnaround, with the group hitting its own guidance and in line with expectations.
However, the German business, which accounts for 30 per cent of total revenue remains a ‘thorn in the group’s side,’ says Richard Hunter, head of markets at ii. Service revenue fell by 0.2 per cent over the last year, as the wider group service revenue jumped 8.8 per cent.
‘At some point, the unit is hoping finally to shake off the effects of these customer losses which were largely attributable to enforced price increases last year, competitive activity elsewhere and the lingering effects of the change to German TV law which resulted in a recontracting of customers,’ says Hunter.
Vodafone warned of ‘uncertainties’ over the outlook caused by the Middle East conflict, but still expects earnings to rise to between €11.9 and 12.2billion.
FTSE plunges into the red as bond yields surge
The FTSE 100 has plunged over 100 points to 10,170, as gilt yields surge.
The 10-year gilt is trading up 10 basis points to 5.08 per cent, while 30-year bonds have reached 5.77 per cent.
Greggs sales rise on new menu boost
It’s a busy morning for corporate updates, with Greggs reporting a jump in sales this year as its new menu boosted demand.
The bakery chain said sales in company-managed shops rose 2.5 per cent in the first 19 weeks of 2026, compared with the same period last year. Total sales were up 7.4 per cent year-on-year to £800m.
It said its new items such as its chicken roll and a range of matcha drinks were proving popular with new and younger customers.
However, it warned that a prolonged conflict in the Middle East could push up cost inflation through the year and into 2027.
FTSE 100 to open in the red
The Footsie is set to open in the red this morning as hopes of an end to the Middle East conflict and reopening of the Strait of Hormuz were dashed.
Futures data from IG suggests the index will drop 0.5 per cent after closing Monday up 0.3 per cent.
It comes as Donald Trump rejected Iran’s proposal for a deal to end the war, which he called ‘unacceptable’ and ‘stupid’.
He told reporters that the month-long ceasefire was ‘on massive life support,’ with only ‘a 1 per cent chance of living’.
