Britain’s borrowing costs jumped by the most in over a year yesterday after Andy Burnham, a mayor on the left of the ruling Labour Party, secured a possible path to challenge Prime Minister Keir Starmer, alarming investors and deepening a leadership crisis.
Starmer is struggling to hold on to power after a tumultuous week when one of his main rivals in government quit, accusing him of a lack of vision, and others positioned themselves for potential challenges to his leadership.
After the drama of the last few days, any challenge could now take longer to materialise, as Starmer indicated he would fight to stay in power but would not block Greater Manchester Mayor Burnham from trying to win the seat in parliament he needs to launch his own leadership bid.
Wes Streeting, who quit as health minister on Thursday and is expected to run against Starmer if a formal contest begins, has indicated he too was willing to wait and see whether Burnham can get to parliament.
That could take weeks, paralysing the government as it faces the economic fallout from the wars in Iran and Ukraine. Britain has had six prime ministers in the last 10 years since Brexit and this latest instability drew the attention of US President Donald Trump, who has criticised his former ally Starmer after Britain declined to join the Iran war.
A British minister loyal to Starmer urged Labour Party colleagues to put the needs of the country before internal party politics.
The potential return of Burnham to Westminster alarmed investors yesterday, as those on the so-called soft-left of the party, including Burnham and former deputy leader Angela Rayner, favour more state involvement in key industries, protecting workers’ rights and more tax to spend.
Sterling fell to a five-week low of $1.3319, down around 0.6 per cent on the day and 2.3pc lower this week, and is set for its worst week since late 2024.
Benchmark 10-year gilt yields – which broadly reflect the cost of new government borrowing – surged to their highest since July 2008 at 5.187pc, up almost 0.2 percentage points in their sharpest daily rise since Trump announced his ‘Liberation Day’ tariffs in April 2025.
Thirty-year yields, a barometer of longer-term borrowing and inflation pressures, hit their highest since 1998 at 5.859pc, according to LSEG data.
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