UK Government borrowing costs fell on Monday after an early spike, as senior ministers rallied behind Prime Minister Keir Starmer and reassured investors about policy continuity.
Yields on gilts rose at the open as traders reacted to the weekend resignation of Starmer’s chief of staff, Morgan McSweeney, following controversy over appointing Peter Mandelson as ambassador to Washington. The sell-off intensified after Downing Street communications director Tim Allan quit on Monday morning, and long-term rates touched their highest level since November.
Pressure on Starmer grew when Scottish Labour leader Anas Sarwar urged him to step aside. Conservative leader Kemi Badenoch said his position was “untenable”, while Green leader Zack Polanski also called for his resignation. Markets began to price in the risk of a change at the top and what that might mean for fiscal policy.
At one point, the 10-year gilt yield climbed 7 basis points to 4.597%, near a two-and-a-half-month high. The 30-year yield rose 8 basis points to 5.42%, its highest since 19 November 2025, shortly before the autumn budget.
The move then reversed as Cabinet figures, including deputy prime minister Angela Rayner, Chancellor Rachel Reeves, Energy Secretary Ed Miliband and Defence Secretary John Healey backed Starmer. Investors remain alert to the possibility that any successor could be more left-leaning, implying higher spending and less emphasis on fiscal rules, typically negative for gilts and sterling.
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