UK gilts and sterling slide as pressure mounts on PM Keir Starmer

On May 12 UK government bond yields climbed and the pound fell after about 80 Labour MPs publicly urged Prime Minister Keir Starmer to resign following the party’s poor outcome in recent local elections. The 30-year gilt yield rose to 5.825% and the 10-year yield reached 5.13%.

The 30-year gilt yield was at its highest level since 1998, while the 10-year yield hit a level not seen since the 2008 financial crisis. Traders sold gilts and sterling as markets reassessed the outlook for government leadership and parliamentary management.

UK equities, including the FTSE, moved lower on May 12 alongside the currency. Market participants noted similarities to September 2022 when a fiscal package led to a sharp gilt selloff, though the earlier episode was triggered by specific unfunded tax cuts.

Roughly 80 Labour MPs calling for the prime minister’s resignation is the largest backbench revolt since Starmer became leader. The number of dissenting MPs could complicate daily parliamentary business. The resignations request followed the party’s local election losses, which critics inside Labour linked to weaknesses in message and organization.

The current market reaction is not tied to a fresh fiscal announcement. The selloff was driven by electoral results and internal party pressure rather than a single government policy change.

Higher gilt yields lower the market price of long-dated government bonds and increase borrowing costs for the state over time. A weaker pound raises the cost of imports when priced in sterling and affects domestic price measures.

A falling pound also affects investors holding dollar-denominated assets. For UK investors, dollar-priced assets such as Bitcoin become more expensive to buy in sterling terms, while existing dollar-denominated holdings increase in value when converted back into pounds.

Markets are watching whether Starmer can contain the parliamentary rebellion and whether any policy announcements alter government borrowing plans or the economic outlook.