Uk borrowing costs spike to 18-year high as Starmer leadership crisis spooks markets

"The cost of UK government borrowing climbed to its highest level in nearly two decades on Tuesday, as mounting speculation over the future of Prime Minister Sir Keir Starmer collided with fresh inflation fears stoked by the Iran conflict, leaving the country's small and mid-sized businesses staring down the barrel of yet another period of squeezed credit and weaker sterling."

"The effective interest rate on 10-year gilts briefly touched 5.13% in morning trading, a level not seen since the depths of the 2008 global financial crisis. Yields on two-, five- and 30-year debt also pushed higher, with the 30-year benchmark hitting 5.80% - the steepest reading since 1998."

"For Britain's 5.5 million SMEs, already grappling with stubborn input costs and a softening consumer, the move in the bond market is no abstract Westminster drama. The two- and five-year gilt yields directly underpin fixed-rate mortgage pricing, and by extension the working capital pressures on owner-managers whose households and balance sheets remain tightly interwoven."

"Markets have been on edge for weeks as the war in Iran has driven crude above $100 a barrel, threatening to reignite the very inflationary fire the Bank of England has spent two years dousing. But while peer economies have weathered the oil shock with comparatively muted moves in their debt markets, Britain's gilts have been singled out for punishment."

UK government borrowing costs rose to the highest levels in nearly two decades as speculation about Prime Minister Sir Keir Starmer’s future coincided with renewed inflation fears linked to the Iran conflict. The effective interest rate on 10-year gilts briefly reached 5.13%, with yields across two-, five-, and 30-year debt also climbing, including 30-year yields at 5.80%. For 5.5 million UK SMEs, higher gilt yields translate into higher fixed-rate mortgage pricing and increased working-capital pressure. Financial markets weakened, with the FTSE 100 falling and sterling slipping against the dollar. Analysts attributed the bond-market stress to political risk, with investors pricing in the possibility of leadership change and potential tax measures.

Read at Business Matters