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UK long-term borrowing costs have surged to a fresh 28-year high and the pound weakened as Prime Minister Keir Starmer’s leadership comes under increasing pressure. The yield on 30-year UK government bonds also known as gilts jumped as much as 13 basis points to 5.807% in Tuesday morning trading, reaching the highest level since 1998 as Starmer faced increasing calls from within his own party to quit. The yield on 10-year gilts also rose back above 5%, lifting by 11 basis points to 5.11%, but remains below recent highs reported last month. Gilt yields move counter to the value of the bonds, meaning their prices fall when yields rise. Rising yields on these bonds mean it costs more for governments to borrow from financial markets. The pound also weakened further amid the UK political instability while stocks on the London market dropped sharply on rising oil prices as the US remained in deadlock with Iran over a resolution to end the conflict. Sterling fell 0.6% to $1.352 and was 0.2% lower at €1.152. The FTSE 100 Index dropped more than 1% in opening trade, later settling 0.5% lower at 10,216.15 The cost of crude continued to edge back up, standing 2% higher at just over $106 a barrel. Neil Wilson, Saxo UK’s investor strategist, warned over further market volatility and a mounting gilt rout until leadership clarity is achieved. He said: ‘We could see a blowout in longer-dated gilts if this turns into a dogfight political, fiscal and inflationary risks will rise. ‘Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier.’ He added: ‘A leftwards lurch would raise hackles among bond vigilantes at a time when the fiscal position is already fragile, and risks are rising due to rising inflation from soaring energy prices and weaker growth outlook for the economy. ‘In the event of a new leadership ticket there is a risk of additional government spending on cost-of-living measures, such as support for rising energy bills, increased minimum wage, benefit uprating and a rental freeze, among a range of potential help mechanisms. ‘It would be a toxic combination for gilts higher spending, lower growth and inflation becoming embedded.’ By Holly Williams, Press Association Business Editor Press Association: Finance source: PA Copyright 2026 Alliance News Ltd. All Rights Reserved.
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