Investors have warned that a Labour leadership contest could trigger a bond market meltdown, echoing the crisis that brought down Liz Truss. The yield on 30-year UK government bonds briefly hit 5.8% on Tuesday, the highest since 1998, as Keir Starmer’s grip on power appeared to slip.
Nigel Green, chief executive of deVere Group, said: “The markets hate uncertainty, but they hate a political vacuum even more. A cabinet resignation followed by a leadership fight would signal that the government is losing control of itself while investors are already questioning the country’s fiscal direction.”
Some Labour MPs have downplayed market concerns. Paula Barker, an ally of Andy Burnham, suggested financial markets would “have to fall into line” if the Greater Manchester mayor became prime minister. Diane Abbott said MPs “might as well go home” if bond market considerations trumped other priorities.
However, Reto Cueni, chief economist at Syz Group, warned: “If the political leadership change or opt for substantially more fiscal loosening, the risk is high that we would see another Liz Truss moment.” Britain’s national debt stands at nearly 100% of GDP, the highest since the 1960s, while debt interest costs already consume about £1 in every £10 of Treasury spending.
Goldman Sachs analysts noted that any successor would face the same constraints: “Policy choices will remain constrained by the challenging backdrop of rising spending pressures and an already elevated tax burden irrespective of any changes in leadership.”
