Britain was brutally pummeled by markets today as Labour chaos looks set to sweep away Keir Starmer.
The UK’s borrowing costs surged to 28-year highs with traders taking fright at the prospect of a lurch to the Left, heaping pressure on the public finances.
The Pound also weakened against the US dollar and euro, while the blue-chip FTSE 100 dropped.
Just two years after they came to power boasting of a new era of stability, a Labour civil war is gearing up as the PM’s grip falters in the wake of the local elections.
Factions are wrestling over the timetable for appointing a successor – with supporters of Blairite Wes Streeting believing a quick contest is his best chance of victory.
But the Left wants to keep Sir Keir in place until September, so Manchester Mayor Andy Burnham has a chance to become an MP again.
Allies of Mr Burnham told Sky News that they will ‘not accept another London leader’, as they battle to control the party’s future direction.
The UK’s borrowing costs rose today, with 30-year gilts surging to 28-year highs
10-year gilts also spiked with traders taking fright at the prospect of a lurch to the Left
The Labour Left wants to keep Sir Keir in place until September, so Manchester Mayor Andy Burnham has a chance to become an MP again
Factions are wrestling over the timetable for appointing a successor – with supporters of Blairite Wes Streeting believing a quick contest is his best chance of victory
Extraordinarily, the Left-wing Tribune group of more than 100 MPs has chosen this moment to call for less ‘caution’ on fiscal policy.
Former minister Louise Haigh, who chairs the group, said the current fiscal rules ‘resolved in favour of caution’. She also demanded big tax rises on wealth.
The yield on 30-year UK Government bonds – known as gilts – jumped to 5.807 per cent in morning trading.
That was the highest level since 1998.
The yield on 10-year gilts also rose back above 5 per cent, lifting by 10 basis points to 5.11 per cent – although that is below recent highs last month.
Part of the move is down to the Iran war turmoil, but the UK has been worse hit than other countries.
Sterling also weakened further while stocks on the London market dropped sharply on rising oil prices.
Sterling fell 0.6 per cent to 1.35 US dollars and was 0.2 per cent lower at 1.15 euros.
The FTSE 100 Index shed more than 1 per cent in opening trade, later settling 95.57 points lower at 10173.86.
Chris Beauchamp, Chief Market Analyst for the UK at trading platform IG, said: ‘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.’
