UK Assets Hammered as Political Crisis Meets Global Inflation Shock
AOL.com reported Friday that British government bonds, equities and sterling all sold off sharply, caught between a domestic leadership crisis and mounting global inflation anxiety.
Gilt Yields Spike as Fiscal Fears Take Hold
UK bond yields surged across the curve. The benchmark 10-year gilt yield climbed nearly 12 basis points to around 5.11%. Investors are pricing in the possibility that political upheaval could lead to a looser fiscal stance. Bond prices fell in tandem, as they move inversely with yields.
Banking stocks bore the brunt of the equity selloff. Barclays and Lloyds each shed more than 2%. The blue-chip FTSE 100 dropped 0.6%, while the more domestically focused FTSE 250 fell 1.1%.
Also Read: Fed Holds Rates Steady Amid Persistent Inflation Uncertainty
Starmer’s Hold on Power Wobbles
Prime Minister Keir Starmer is fighting to retain his leadership after Health Secretary Wes Streeting resigned from government. Several figures have since positioned themselves as potential successors, following bruising local election results the previous week.
Greater Manchester Mayor Andy Burnham emerged as a frontrunner after a Labour lawmaker said he would vacate his parliamentary seat. A by-election win could hand Burnham a route to challenge for the party leadership.
Jefferies economist Mohit Kumar warned that markets fear a Burnham premiership would skew further left and expand the deficit. Kumar described the firm’s base case as a managed Starmer exit, with Burnham likely becoming the next prime minister.
A Market Already Under Pressure From Oil and War
The political turbulence has arrived at a particularly fragile moment. Crude oil prices have surged more than 50% following the outbreak of war between the United States and Iran. That shock has been working its way through supply chains, lifting both consumer and factory price pressures.
Britain is especially exposed given its heavy reliance on energy imports. The pound has historically weakened during periods of rising oil prices or elevated Middle East tensions, and Friday proved no different.
Sterling fell 0.3% on the day to around $1.3364, after touching a five-week low of $1.3335 earlier in the session. The currency is now down nearly 2% against the dollar for the week, its worst weekly performance since November 2024.
Traders will be watching closely for any formal leadership challenge in Westminster. A prolonged succession battle could deepen the selloff in UK assets further.
