Britain faced a severe market rout today as a deepening Labour Party power struggle threatens to sweep away Prime Minister Keir Starmer. The UK's borrowing costs surged sharply, with traders alarmed by the prospect of a leftward lurch that could destabilise public finances.
Market Turmoil
The yield on 30-year UK government bonds, known as gilts, jumped as much as 11 basis points to 5.785 per cent in morning trading, nearing the 28-year high recorded last week. The yield on 10-year gilts also rose back above 5 per cent, climbing 10 basis points to 5.101 per cent, though remaining below recent highs from last month. While part of the move is attributed to global tensions from the Iran war, the UK has been hit harder than other countries.
Sterling weakened further, falling 0.5 per cent to 1.35 US dollars and declining 0.2 per cent to 1.15 euros. The blue-chip FTSE 100 index shed more than 1 per cent in opening trade, later settling 95.57 points lower at 10,173.86, as rising oil prices weighed on London stocks.
Labour Civil War
Just two years after coming to power boasting a new era of stability, Labour is engulfed in a civil war following the local elections. Factions are wrestling over the timetable for appointing a successor to Starmer, whose grip on the party is faltering.
Supporters of Blairite Wes Streeting believe a quick contest is his best chance of victory. However, the Left wants to keep Starmer in place until September, allowing Manchester Mayor Andy Burnham to become an MP again. Allies of Burnham told Sky News they will 'not accept another London leader', as they battle to control the party's future direction.
Left-Wing Fiscal Push
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, stated that the current fiscal rules 'resolved in favour of caution' and demanded big tax rises on wealth. This has added to market jitters over potential policy shifts.
