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Tue, 12 May 2026

Tue, 12 May 2026 UK borrowing costs jump as uncertainty over PM's future continues

The possibility of a change of leadership in the UK has unsettled some investors and sent bond yields higher.
UK government borrowing costs surged on Tuesday due to uncertainty over Prime Minister Sir Keir Starmer's future. The 10-year gilt yield reached 5.13%, its highest level since the 2008 global financial crisis, as investors worried about potential changes to economic policies and public spending. The FTSE 100 stock index fell by 1% in opening trade but closed down only 0.04%. Shares in banks including Lloyds, NatWest, and Barclays declined amid concerns of a tax raid by a new administration. The pound also weakened against the dollar, falling to $1.35 from $1.37. Analysts at Capital Economics warned that UK borrowing costs would rise further if there was a change at the top of the Labour party, citing concerns about potential relaxations in fiscal discipline. They noted that frontrunners to challenge Sir Keir - Andy Burnham, Angela Rayner, and Wes Streeting - might increase public spending. The UK's fragile fiscal position has made investors nervous, with some questioning whether the country's budget rules were "fit for long-term renewal". The government has consistently committed to maintaining its borrowing targets, but some Labour MPs have expressed doubts about their credibility. Borrowing costs rose across all maturities - two, five, 10, and 30-year terms - as investors demanded higher interest rates due to perceived risk. The yield on 30-year bonds hit a high of 5.81%, the highest since 1998. The main driver of higher borrowing costs globally has been inflationary expectations caused by surging energy costs since the Iran war began. The UK's borrowing costs have risen more than those in countries with similar economies, likely due to concerns about potential changes in public spending and economic policies.