UK borrowing costs climbed as markets reacted to political uncertainty following the departure of two senior aides to Prime Minister Keir Starmer, prompting investors to reassess the stability of the UK government and its economic direction.
Yields on UK government bonds rose on Monday after it emerged that Starmer’s chief of staff, Morgan McSweeney, had resigned over the decision to appoint Peter Mandelson as Britain’s ambassador to Washington. Borrowing costs moved higher again after Downing Street communications director Tim Allan stepped down on Monday morning.
Long-term gilt yields touched their highest levels since November amid reports that Anas Sarwar was preparing to urge Starmer to stand down as both prime minister and Labour leader. With Conservative leader Kemi Badenoch describing Starmer’s position as “untenable” and Green Party co-leader Zack Polanski also calling for his resignation, investors in the City of London began weighing the prospects of a leadership change and its implications for public finances.
The yield on 10-year UK government bonds rose by as much as seven basis points to 4.597%, matching a two-and-a-half-month high. Thirty-year gilt yields increased eight basis points to 5.42%, the highest level since November 2025, just ahead of last autumn’s budget. Rising yields reflect falling bond prices and indicate higher borrowing costs for the UK government.
Sterling weakened against the euro, slipping to €1.1460 — its lowest level in more than two weeks — while remaining slightly firmer against the US dollar by midday.
Russ Mould, investment director at AJ Bell, said market moves suggested calm rather than crisis.
“Movement among government bonds and the currency suggests there is no panic on financial markets about the stability of the UK government,” he said.
However, analysts warned that a potential change in leadership could push borrowing costs higher. Likely successors to Starmer are viewed as more left-leaning, implying higher public spending and less emphasis on strict fiscal rules — factors that typically weigh on gilts and sterling. Figures such as Angela Rayner and Andy Burnham have previously signalled a willingness to challenge market constraints on government policy.
Economists at Capital Economics said gilt yields would probably rise and the pound weaken if either Starmer or the chancellor, Rachel Reeves, were replaced.
“The most likely longer-lasting influence is a loosening in fiscal policy that leads to higher gilt yields than otherwise and a weaker pound than otherwise,” said Ruth Gregory, the firm’s deputy chief UK economist.
Sterling had strengthened against the dollar in January but has slipped so far this month. Neil Wilson, investor strategist at Saxo UK, said further pressure could follow if political tensions escalate.
“Over the weekend, Starmer’s chief of staff, Morgan McSweeney, resigned and took responsibility for advising the PM to appoint Mandelson,” he said.
“Far from drawing a line under things, this seems to have sparked renewed calls for Starmer to do the same.”
Wilson warned that UK government bonds could come under renewed selling pressure if investors sense an increased likelihood of a leadership contest.
“If the bond vigilantes were to sniff the likelihood of a leadership change I’d expect gilts to sell off, with sterling also hit as a proxy for investor sentiment towards UK political uncertainty and instability,” he said.
