Long-term borrowing costs in the UK surged to their highest level in nearly 30 years earlier this week, driven by concerns over potential shifts in Labour leadership. Investors were apprehensive about possible changes to the party’s tax and spending policies, which caused the yield on 30-year government bonds to leap by 11 basis points, reaching 5.794% on Tuesday morning, a peak not seen since May 1998.
The situation eased somewhat after Prime Minister Keir Starmer assured his cabinet that he had no plans to resign and that no leadership challenge process was underway. Prior to this cabinet meeting, Miatta Fahnbulleh announced her resignation, marking the first ministerial departure following Labour’s substantial losses in recent local and devolved elections. She urged Starmer to step down, adding to the political tension.
During the cabinet meeting, Starmer reiterated that the Labour party has specific procedures for leadership challenges, none of which had been initiated. He emphasized the importance of focusing on governance, stating, “The country expects us to get on with governing. That is what I am doing and what we must do as a cabinet.”
Following these developments, key cabinet ministers, including Business Secretary Peter Kyle, Technology Secretary Liz Kendall, and Housing Secretary Steve Reed, publicly expressed their support for Starmer. This show of unity helped to stabilize financial markets that had been rattled by earlier events.
As a result, the benchmark 10-year yield on UK government bonds decreased to below 5.1%, after peaking at 5.13% earlier in the day. Similarly, the 30-year yield, which had reached a new 28-year high of 5.81%, fell back to 5.76%. The backing of Starmer by his cabinet colleagues appeared to have a calming effect on the financial markets.