Keir Starmer's speech ‘fails to reassure bond markets’ as yields rise higher
UK government borrowing costs are creeping a little higher after a morning of rising political jitters.
The yield, or interest rate, on UK 30-year bonds is now up 8 basis points (0.08 of a percentage point) at 5.65%, up from 5.57% on Friday night. That's higher than just before Keir Starmer's speech this morning, when they were up about 5bps.
Benchmark 10-year bond yields have risen higher too – now up 6bps, having been 4bps higher earlier in the morning.
Rising bond yields indicate that bond prices have dropped, suggesting less appetite for UK debt and pushing up the cost of borrowing.
These increases comes as Labour MP, David Smith, has said Starmer should set a timetable for his departure and that the government neeed “to act faster, and be more radicalâ€.
Update: Labour MP Catherine West, who announced a challenge to Starmer over the weekend, has now said she wants the prime minister to set a timetable of September for an orderly departure.
Susannah Streeter, chief investment strategist at Wealth Club, says there are concerns in the bond markets that a change of Prime Minister would prompt wider turmoil at the top of government, and less focus on fiscal rules.
Streeter writes:
double quotation mark “Keir Starmer's address to the nation hasn't done the trick of calming bond markets. There is still a sense of jitters playing out as concerns about political instability collide with inflationary fears prompted by the ongoing conflict in the Middle East. His speech was designed to project a ‘keep calm and carry on' message, but the worry is that it lacks the real substance needed to keep Labour MPs on side.Ten-year gilt yields have crept higher, nudging 5% once more, while longer-dated government debt remains hovering above 5.6%. They have not been at this level for a sustained period since the late 1990s.
Key events
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The pound is now very slightly HIGHER against the US dollar.
Sterling has gained 0.1% to $1.3645, despite the political drama swirling in Westminster….
UK yields on the rise due to the country being “ungovernable�
With UK bond yields still higher as trading draws towards a close, Professor Costas Milas of the University of Liverpool tells us:
double quotation mark There is no doubt that most of the latest rise in UK yields is due to higher, and sticky, inflation compared to other EU countries and/or the US.Nevertheless, the ongoing political instability, which raises the issue of how well the country can be governed, adds significantly to our cost of borrowing.
Recall that the Bank of England currently pursues active Quantitative Tightening policies (I.e. it sells UK bonds; the reversal of QE) which also contribute to higher yields. It would be wrong for analysts/commentators/experts to call for a QT halt for two reasons.
First, the BoE would then be accused of interfering with political issues. Second, abandoning (albeit temporarily) QT, would add further to inflation pressures at the very time the BoE is trying to find a way of dealing with them…
Small rise in US home sales
US home sales rose by less than expected last month, as higher interest rates hit demand.
Sales of existing homes rose by 0.2% last month to a seasonally adjusted annual rate of 4.02m units, the National Association of Realtors has reported, below forecasts of a rise to 4.05m units.
Lawrence Yun, the NAR's chief economist, says:
double quotation mark “Despite mixed macroeconomic signals, including a record-high stock market and historically low consumer confidence, home sales were modestly boosted by the continued improvement in housing affordability.â€
Wall Street's main indexes have opened cautiously, as fears over the Iran war talks lifted oil prices.
The Dow Jones Industrial Average has dropped by 0.05%, or 35 points, at 49,574 points.
The broader S&P 500 index is up 0.15%, and the Nasdaq Composite is 0.1% higher.
Investors are on edge after Donald Trump called Iran's response to a US peace proposal ‘totally unacceptable', and Tehran said it will retaliate against any new US strikes or foreign warships in the strait of Hormuz.
Over 5m UK workers hit by employment law violations
Priya Bharadia
At least one in seven UK workers had their employment rights violated between 2023 and 2025, a report by University College London suggests.
Researchers from UCL found that at least 5.4 million workers had faced clear violations of UK employment law, including being paid below the national minimum wage, charged work-finding fees, and not receiving payslips or contracts.
The team spoke to representative sample of more than 4,000 UK workers about their experiences at work over the two year period. They found that 6.1% were paid below the national minimum wage, a rate four times higher than the previous estimate of 1.6% published by the Office for National Statistics.
Low-income workers were found to be particularly vulnerable, with the rate of violations rising to more than one in four (25.6%) for employees from minority-ethnic backgrounds or in non-traditional jobs.
Approximately 26 to 28 million people, or 70% of the workforce, have experienced at least one of a broader range of harms, also including potentially illegal or otherwise damaging work practices, according to the researchers. These other negative impacts included working extra hours unpaid, physical injuries in the workplace, and bullying or harassment.
“Not all breaches of the law are deliberate and not all harmful behaviour is illegal,†said UCL professor Ella Cockbain, who co-led the project. “But the sheer scale of problems identified suggests widespread non-compliance and other harms at work.â€
The report recommended the government improve communications about workers' rights, and create easier and safer methods for reporting abuses, including multi-lingual communications and safeguards for migrant workers.
Cockbain added:
double quotation mark “The received wisdom that there are a few ‘bad apples' among employers is simply not tenable anymore. We found problems across the system, and rights on paper did not necessarily translate into rights in practice. The results call for concerted action to improve worker protections and their enforcement.â€
Since the research period, new legislation under the Employment Rights Act, which came into force last month has improved a number of conditions for employees and workers, including guaranteed hours and payment for short-notice cancellation of shifts, a ban on fire-and-rehire in most cases, paternity and parental leave from day one and stronger trade union rights.
The research was conducted by UCL in collaboration with the University of Gloucester, and co-funded by the Department for Business and Trade and the Economic and Social Research Council. It was published by the newly established Fair Work Agency.
Elsewhere in the markets, India's stock market fell sharply today after the country's prime minister called on citizens to conserve fuel, work from home where possible and cut back on travel and imports.
Narendra Modi made the call to ease pressure on the country's foreign exchange ​reserves, as the Iran war causes economic turbulence.
Investors took it badly, though, with India's Sensex falling by 1.7% today.
Shumita Deveshwar of City consultancy TS Lombard say the comments are “a stark reminder of the macro risks India faces from a prolonged conflictâ€.
A shift to the left for the Labour party would trigger “at least a temporary period of pound sellingâ€, predicts Lee Hardman, currency expert at Japanese bank MUFG.
So far today, though, the pound is flat against the euro at €1.156, and down just 0.15% against the US dollar at $1.361.
1o-year gilt yields hit 5%
UK 10-year bond yields have just hit the 5% milestone.
That's a jump of eight basis points (0.08 of a percentage point), to the highest level since last Wednesday, approaching their highest level since the 2008 financial crisis.
Enrique DÃaz-Alvarez, chief economist at global financial services firm Ebury, argues that the pound has weathered the results of the May local elections in the UK remarkably well.
With sterling down just 0.2% so far today, DÃaz-Alvarez argues that the Labour bloodbath was roundly expected and priced in by markets, adding:
double quotation mark “Investors are betting that Labour's overwhelming defeat will not end Starmer's premiership just yet, but pressure on the prime minister looks set to intensify in the coming days, with a number of backbenchers already calling for his resignation.“As this is written, no potential rivals on his left have launched a formal bid to replace him, although there are murmurs that the likes of Rayner and Streeting are privately weighing their options.
“A potential lurch to the left is what markets fear most, as this could mean higher taxes, heavier gilt issuance and a broader fiscal risk premium baked into UK assets.
Shorter-dated UK government bonds, which are more sensitive to short-term inflation risks, are also weakening today.
This has pushed up the yields on two-year, and five-year, gilts by around 8bps today – bigger rises than for US shorter-dated bonds.
And still UK bond yields creep higher.
The 30-year bond yield is now up 9.3 basis points (0.093 of a percentage point), to 5.67%.
That takes it nearer to the 28-year high of 5.78% hit last week, amid uncertainty about the future of Keir Starmer's government.
