UK government borrowing costs are still elevated as noon approaches, but not quite as high as they were.
Bond yields have dipped back after Keir Starmer told the cabinet he was not resigning.
After that meeting, several cabinet ministers including Peter Kyle, the business secretary, Liz Kendall, the technology secretary,. housing secretary Steve Reed told reporters they were supporting Starmer.
The 30-year bond yield is now up 9 basis points at 5.76%. having hit a new 28-year high of 5.81% this morning ( see earlier post ).
Ten-year bond yields are off their earlier highs too – up almost 10bps at just below 5.1%. having hit 5.13% earlier today.
After a rocky session, UK government bond prices were significantly lower as trading drew to an end in London.
That shows that the day of political drama. as Keir Starmer fought off efforts to make him step down, have pushed up UK borrowing costs as the markets anticipated the possibility of a more left-wing successor.
The UK 10-year bond yield. which hit its highest since 2008 this morning at 5.13%, has eased back to 5.1%, up from 5% yesterday (that’s a rise of 10 basis points).
Longer-dated 30-year bond yields hit their highest since 1998 earlier today, at 5.81%,. at 5pm was more than 9bps higher at 5.76%.
After surging on speculation that Starmer could be forced to lay out a departure timetable, yields eased slightly as some cabinet members –. Labour MPs – backed him.
However, with several ministers quitting today, the PM still appears in a perilous position.
Kathleen Brooks. research director at XTB, suggests the bond markets could save Starmer, given the dangers of higher borrowing costs for the UK’s public finances.
double quotation mark The UK still has the highest borrowing costs of any G7 member,. our yields have risen at the fastest rate since the Middle East war started. Until a challenge from the left of the Labour party is eradicated. or the government embarks on growth-positive economic policy, we do not see UK bond yields substantially falling from here.
The pound has also stabilized, and GBP/USD is just above $1.35. The market is willing to wait and see but remains extremely sensitive to news out of Westminster. Ultimately. it could be the bond market that saves Starmer, as it’s unlikely bond traders would trust anyone else at this stage.
But, with UK 10-year yields at their highest level since 2008,. 30-year yields back at 1998 levels, the recent upheaval and spike in yields could be worse than the Truss crisis in 2022.
The boss of JP Morgan has indicated that it would scrap plans for a multi-billion pound headquarters in Canary Wharf. if bank taxes were hiked by a successor to Keir Starmer.
Jamie Dimon was asked by Bloomberg TV if JPMorgan would review its plans for the new office in light of recent political instability,. replied:
double quotation mark “Not political instability but if they become hostile to banks again, yes.
I’ve always objected to the fact. we didn’t damage the UK in any way, we paid probably $10 billion in extra taxes by now. I don’t think that’s right or fair. If that happens too much we will reconsider.”
JP Morgan revealed plans to build a 3m sq ft tower in Canary Wharf. which will serve as its new UK headquarters, in November 2025, just hours after Rachel Reeves’s most recent budget.
Britain’s blue-chip share index has ended the day pretty much where it began!
After a session in which traders watched events in Westminster. as well as the latest US inflation report, the FTSE 100 share index has closed down just 4 points, or 0.04%, at 10,265 points.
Banks were among the fallers, with Lloyds losing 4.3%. Barclays off 3.3%, amid speculation that taxes on the financial sector could be increased by a left-leading successor to Keir Starmer.
The jump in UK borrowing costs today means. bond prices have fallen – so that investors get a better rate of return for holding British government debt.
April LaRusse. head of investment specialists at Insight Investment, warns that UK bonds have ‘decoupled’ from the rest of the bond market – if that process continues, prices could fall further, pushing bond yields higher.
double quotation mark “While the Middle East conflict has pushed bond yields higher across most markets. gilts have now clearly decoupled from the pack.
Investor attention has shifted to domestic political risk, particularly the possibility that a change in leadership could loosen fiscal discipline. In our view, any new leader would move quickly to reassure markets and dampen volatility. The risk is all about timing. A drawn‑out or uncertain transition, or even no change at all, keeps speculation alive, and neither outcome is market friendly.
Gilt markets appear cheap at this point, but that doesn’t mean they can’t get cheaper.”
The pound is trading around its lowest level of the day against the US dollar, at $1.351.
That’s a drop of almost one cent. despite more than 100 Labour MPs have signed a letter saying this is “no time for a leadership contest”.
As our Politics Live blog points out, that means the pro-Starmer camp is outnumbering the anti-Starmer camp –. only just….
Away from the bond market, oil is pushing higher.
Brent crude is now up almost $4 a barrel. or 3.78%, at $108.17 a barrel, as hopes of an imminent US-Iran peace deal fade.
Donald Trump’s warning yesterday that the ceasefire with Iran is on “life support” has dented hopes of an end to the conflict. a resumption of oil and gas flows through the strait of Hormuz soon.
The US defence secretary. Pete Hegseth, has told the House appropriations subcommittee on defence today that the US has a plan to escalate its activities against Iran if necessary.
The UK’s FTSE 100 share index is outperforming European rivals today, despite the political crisis in Westminster.
The ‘ Footsie ’ is down 0.35%, while France’s CAC has lost 0.7% and Germany’s DAX is down 1.1%.
The DAX. CAC have been more vulnerable to the Middle East crisis than the London market (which contains more ‘defensive’ stocks, and major oil companies).
City & Guilds Foundation has appointed a new chief executive as the charity navigates an official investigation into its controversial sale of the City & Guilds awarding. training business to PeopleCert last year.
Ben Blackledge is joining from WorldSkills UK, a partnership between education, industry. UK governments to promote vocational training, where he is chief executive.
He arrives as the 148-year-old body is the subject of a Charity Commission statutory inquiry, which launched in January. was mirrored a day later by PeopleCert commissioning its own internal investigation into the deal.
The appointment also comes as the foundation stands accused of attempting to dodge accountability for a “ catastrophic failure of governance ” by stalling on launching its own independent inquiry into the £166m deal. after members voted overwhelmingly last month for the trustee board to trigger what would be the third examination into how the charity privatised its operations.
In an announcement that avoided any mention of the various issues facing the body, Blackledge said:
double quotation mark “I am delighted to be joining the City & Guilds Foundation at such an important. exciting moment. The Foundation’s role has never been more vital,. I look forward to working with the outstanding team, partners and members to apply its 148-year legacy to the challenges and opportunities of today.”
On launching its own investigation, a foundation spokeswoman has previously said:
double quotation mark “The trustees remain committed to working constructively with members to find a clear. proportionate way forward in the best interests of the charity. We are reviewing options to shape this approach. ensuring we address members’ concerns while avoiding unnecessary duplication with the Charity Commission’s investigation. Our priority is to safeguard the integrity and future of the Institute.”
The pound may face “fresh waves of selling pressure” if Keir Starmer is ultimately forced to step down. analysts at UniCredit predict.
However. they don’t think we’ll see the extremes reached during former PM Liz Truss’s premiership in September 2022, when the pound fell to a record low of $1.0327 against the US dollar.
double quotation mark In any case. while higher yields might also have provided sterling with some cushion to the downside for now, the further sharp rise in UK long-term yields that we would expect if Starmer were to resign would be unlikely to provide fresh relief to sterling. Rather. it would represent an additional source of concern that would only add to worries about the health of UK public finances.
A source at a second City bank has said everyone in the business and banking community wanted predictability.
They added that there had been “quite positive signals from the City” about chancellor Rachel Reeves’ plans to generate growth. “so for anything to be derailed at this point would be damaging”.
“The worst thing at the moment would be going through another messy leadership race,” they said. adding “we don’t want to see what we experienced with the previous [Tory] government” referring to the party’s rotating cast of prime ministers.
double quotation mark “If you’re planning for an IPO, for example, you need stability in the markets..There’s been talk of a number of IPOs coming down the track in the UK,. that gets derailed in situations like this.”
[an IPO, or ‘initial public offering’ is a way of floating on the stock market.]
Newsflash: inflation in the US has jumped, as the Iran war drives up costs.
US consumer prices rose by 3.8% in the year to April,. by 0.6% during last month alone, new data from the US Bureau of Labor Statistics shows.
Energy prices jumped by 3.8% in April alone, the report shows,. were up 17.9% on an annual basis, as Americans were hit by surging gasoline prices.
Food prices rose by 0.5% in the month, and by 3.2% over the year.
These price rises may drive up the economic impact of the Middle East conflict triggered by Donald Trump at the end of February,. could also make it harder for US central bankers to cut interest rates soon.
The UK’s share index of medium-sized companies has also had a bad day, so far.
The FTSE 250 index. which contains firms too small for the FTSE 100, is down 1.2% so far today, or -270 points at 22,536 points.
The FTSE 100, which has more of an international focus, is down 0.5%.
Jason Hollands, managing director at investing platform Bestinvest, says “domestically focused mid-cap stocks” are particularly exposed today, from fears over the Iran war. the UK’s political crisis.
double quotation mark “President Trump’s warning that the Iran ceasefire is on ‘massive life support’ has reignited inflation fears by sending Brent crude oil surging to $107 a barrel. raising concerns that energy-driven price pressures could persist for longer. The UK is particularly vulnerable to higher energy prices because it remains heavily reliant on imported energy, meaning any sustained rise in oil. gas costs quickly feeds through into inflation and economic growth concerns.
“At the same time. markets are becoming increasingly uneasy about instability within the Labour government, with Sir Keir Starmer’s position appearing increasingly precarious following the rout at last week’s local elections. The bond vigilantes are out in force, clearly worried that any leadership change within the governing party could herald a shift towards more radical economic policies, with greater borrowing or even higher taxes becoming more probable at a time when the public finances are already under intense scrutiny, growth is anaemic,. productivity is weak.
City consultancy Oxford Economics fears 5% 10-year gilt yields are here to stay.
Their chief UK economist Andrew Goodwin explains:
double quotation mark “The increase in UK government bond yields since the start of the Iran war has been greater than in most other advanced economies.”
“Markets clearly perceive the UK has a bigger inflation problem. that tighter monetary policy will be needed to limit second-round effects from the energy shock, while political uncertainty has added to pressures at the long end.”
Bank sources are playing down the impact of uncertainty over Starmer’s future. saying that while they wanted stability, they were agnostic about how Labour would get there.
A City source at a UK investment bank told the Guardian that while it was an “unwelcome distraction”, traders seemed “sanguine” about the Labour government turmoil, adding that this kind of instability was not unique to the UK. something they were increasingly used across Europe.
They said bankers believed Labour policies were “unlikely to be that radical” even with a change in leadership.
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