Yields on UK government bonds rose on Monday after Prime Minister Keir Starmer's address to the nation failed to reassure investors, amid mounting political uncertainty and fears of a leadership challenge. The yield on 10-year gilts increased by 8 basis points to 5%, while the 30-year yield climbed over 10 basis points to 5.68%, edging closer to last week's 28-year high of 5.78%.
The rise in borrowing costs reflects growing jitters in bond markets over political instability, compounded by inflationary pressures from the ongoing conflict in the Middle East. Susannah Streeter, chief investment strategist at Wealth Club, said Starmer's speech lacked the substance needed to calm markets, noting that concerns about a change of prime minister could prompt wider turmoil and less focus on fiscal rules.
Labour MP David Smith called on Starmer to set a timetable for his departure, while MP Catherine West, who announced a challenge over the weekend, urged the prime minister to plan an orderly exit by September. Starmer, however, vowed to fight any leadership challenge and not walk away from his responsibilities after Labour's poor showing in recent local and parliamentary elections.
Analysts at the Item Club estimated that the UK economy could lose 163,000 jobs this year as the Iran war drives up energy costs and hits household incomes. Meanwhile, Heathrow reported a drop in April passenger numbers due to the conflict, and factory gate inflation in China hit a near-four-year high.
In other developments, German energy group E.ON agreed to buy struggling UK rival Ovo, creating Britain's largest gas and electricity supplier. Bank of England Deputy Governor Sam Woods warned of significant disruption to banking customers from rapid AI developments, citing increased patching of IT systems as a common cause of outages.
