UK Gilt Yields Ease After Starmer Vows to Stay Despite Heavy Local Election Losses
CNBC reported Friday that UK gilt yields pulled back sharply after Prime Minister Keir Starmer declared he would not resign, even as early local election results pointed to substantial losses for his Labour Party.
Benchmark 10-year gilt yields fell nearly six basis points to around 4.89% by mid-morning London time. The move came directly after Starmer addressed reporters outside Downing Street and pledged to serve out his full five-year term.
Starmer Defiant as Results Roll In
Starmer described the results emerging overnight as “really tough.” He acknowledged voters were signaling frustration with the pace of change, but stopped well short of any suggestion he might stand aside. He said walking away would plunge the country into unnecessary chaos.
Vote tallies showed Labour losing hundreds of council seats nationwide. Right-wing Reform UK and the left-wing Greens were among the biggest beneficiaries of the collapse in support for the two major parties. Final results from all councils are not expected until Saturday afternoon.
Why Bond Traders Were Watching
Gilt markets had been on edge for days before Thursday’s vote. UK borrowing costs had climbed to multi-decade highs earlier in the week, driven partly by reports that backbench Labour MPs were preparing to call for Starmer’s removal once the results were in.
Analysts at Deutsche Bank, led by strategist Jim Reid, flagged in a Friday morning note that investors would be focused on what Labour parliamentarians and cabinet ministers said publicly throughout the day. The bank explained that expectations of a new Labour leader potentially relaxing fiscal rules and lifting gilt issuance had been the primary source of bond market anxiety.
One fund manager told CNBC that neither a Starmer departure nor his survival would be straightforwardly welcomed by gilt investors.
A Recurring Pattern for UK Bonds
This is not the first time UK government borrowing costs have spiked on political uncertainty inside the Labour ranks. Last July, gilt yields surged sharply after Finance Minister Rachel Reeves was filmed visibly distressed in parliament, amid speculation her position in cabinet was at risk.
Reeves has faced sustained pressure over fiscal strategy from within her own party. Welfare reform proposals and the controversial appointment of Peter Mandelson as US ambassador have added further tension inside Labour’s parliamentary group.
Senior figures including Health Minister Wes Streeting and Greater Manchester Mayor Andy Burnham have been named in media reports as potential leadership alternatives, though Burnham currently lacks a parliamentary seat required to serve as prime minister.
For now, Starmer’s firm public stance appears to have given gilt markets temporary breathing room. The full picture of Labour’s losses will only become clear once Scotland and Wales report their devolved government results later Friday evening.
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