UK borrowing costs dipped back on Monday after rising earlier in the day, as cabinet ministers voiced support for the embattled Keir Starmer.
The yield, or interest rate, on UK benchmark bonds initially increased on Monday as traders reacted to Sunday’s resignation of the prime minister’s chief of staff, Morgan McSweeney, over the decision to appoint Peter Mandelson as ambassador to Washington.
Yields rose further after the Downing Street communications director, Tim Allan, resigned on Monday morning, with long-term borrowing costs then hitting their highest level since November, as the Scottish Labour leader, Anas Sarwar, called on Starmer to stand down as prime minister.
With the Conservative leader, Kemi Badenoch, saying Starmer’s position was “untenable” after the departure of McSweeney, and the Green party leader, Zack Polanski, agreeing he should resign, the City of London was weighing up the prime minister’s survival chances, and assessing the impact of likely replacements on the public finances and the economy.
At one stage, the yield on 10-year UK government debt rose by as much as 7 basis points (0.07 percentage points) to 4.597%, matching a two-and-a-half-month high set last week. The yield on 30-year bonds was eight basis points higher at 5.42%, the highest since 19 November 2025, a week before the autumn budget.
But borrowing costs then reversed almost all their earlier rise, after several cabinet members including the deputy PM, David Lammy, the chancellor, Rachel Reeves, the energy secretary, Ed Miliband and the defence secretary, John Healey, expressed support for the prime minister.
Angela Rayner, the former deputy prime minister and potential replacement for Starmer, also backed Starmer.
“I urge all my colleagues to come together, remember our values and put them into practice as a team. The Prime Minister has my full support in leading us to that end,” she posted on X.
Yields rise when bond prices fall, and indicate the rates at which investors are willing to lend to the government.
The pound dipped by up to half a euro cent against the euro to €1.1460, the lowest in more than two weeks, but was a little higher against the US dollar at lunchtime.
“Movement among government bonds and the currency suggests there is no panic on financial markets about the stability of the UK government,” said Russ Mould, the investment director at AJ Bell.
The likely candidates to replace Starmer would be more left-leaning; this implies higher spending and less focus on hitting the UK’s fiscal rules, which would typically be negative for UK government bonds and sterling.
Rayner could take a more tax-and-spend approach, while the Greater Manchester mayor, Andy Burnham, has said Britain should stop being “in hock” to the bond markets.
Capital Economics, the City consultancy, believes gilt yields are likely to rise if Starmer or Reeves are replaced, while the pound would weaken.
“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 deputy chief UK economist at Capital Economics.
The pound rallied against the US dollar in January but has dipped so far this month.
Neil Wilson, an investor strategist at Saxo UK, suggested sterling could face more pressure “should the prime minster cop more heat over his appointment of Peter Mandelson as Britain’s ambassador to the US”. UK government bonds could be vulnerable, too.
“Over the weekend, Starmer’s chief of staff, Morgan McSweeney, resigned and took responsibility for advising the PM to appoint Mandelson. Far from drawing a line under things, this seems to have sparked renewed calls for Starmer to do the same.
“Gilts were steady enough Monday morning but 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,” Wilson warned.