A new level of alertness is being driven shoppers to United Kingdom, as political uncertainty surrounding the future of Prime Minister Kire Starmer sent the country’s borrowing costs soaring to their highest levels in decades.
The yield on the British 10-year Bondclimbed to 5.14%, the highest level since 2008, even surpassing the levels recorded after the crisis-induced Liz Truss’ 2022 “mini-budget”. At the same time, the 30-year bond topped 5.8%, marking its highest level since 1998.
The developments reflect strong investor concern about both political stability and fiscal discipline in the world’s fifth-largest economy. Starmer faces an intra-party crisis in the Labour Party as pressure mounts for him to remain prime minister.
Despite his public assurances to the cabinet that he does not intend to resign, the turmoil within Labour is intensifying. According to British media, some 80 MPs in the party have voiced objections to his leadership, and two members of his government have already resigned.
The new political crisis was sparked after Labour‘s unfavourable performance in the recent local government elections, which revived succession scenarios in Downing Street. Starmer is already the fifth British prime minister in seven years, at a time of unprecedented political instability for the country.
The markets, however, are not just worried about the political side. A possible scenario of a weakened or removed Starmers is seen as one that could strengthen the more left-wing of Labour, raising fears of looser fiscal policy and greater public spending.
The increased cost of borrowing now makes Britain a more expensive borrower even compared with eurozone countries that were at the centre of the debt crisis in the past decade. Significantly, the Greek 10-year bond is trading below 3.8%, some 1.3 percentage points lower than its British counterpart.
The market turmoil comes at an already difficult time for Europe, as government budgets are being squeezed by the fallout from the energy crisis and geopolitical tensions in the Gulf, bringing back fears that political instability could quickly turn into a fiscal crisis.
