Markets rattle Starmer as UK borrowing costs surge towards crisis levels

Britain’s borrowing costs have surged back towards multi-decade highs amid mounting investor anxiety over Keir Starmer’s embattled leadership and escalating tensions in the Middle East.

The yield on 30-year UK government bonds climbed as much as 11 basis points to 5.785pc in Tuesday trading, moving back within striking distance of the 28-year peak reached last week.

Ten-year gilt yields also pushed back above the psychologically important 5pc threshold, rising 10 basis points to 5.101pc.

The sharp moves signal growing unease in financial markets over Britain’s economic outlook as investors demand higher returns to lend to the Government.

Rising gilt yields increase the cost of borrowing for the Treasury and can feed through into higher mortgage rates and business lending costs across the wider economy.

The sell-off came as pressure intensified on Sir Keir’s administration amid weakening growth expectations, stubborn inflation concerns and fears over the global impact of the Iran crisis.

Sterling also came under renewed pressure, falling 0.5pc against the dollar to $1.35 while slipping 0.2pc against the euro to €1.15.

London’s stock market suffered a broad retreat as soaring oil prices weighed heavily on investor sentiment.

The benchmark FTSE 100 fell more than 1pc in early trading before recovering slightly to trade 95.57 points lower at 10,173.86.

Energy markets remained volatile amid continued deadlock between the United States and Iran over efforts to de-escalate the conflict.

Brent crude prices climbed another 2pc to $106.53 a barrel, reinforcing fears that prolonged instability in the Gulf could trigger a fresh inflationary shock for Western economies.

The renewed spike in borrowing costs will add to concerns inside Downing Street that Britain risks entering a dangerous cycle of weak growth, elevated inflation and rising debt-servicing costs.

Investors have increasingly scrutinised Britain’s fiscal position in recent weeks as economic forecasts deteriorate and markets question how governments across Europe will absorb higher defence and energy spending pressures.

The move higher in gilt yields also echoes the turbulence seen during previous periods of political instability, when investors demanded a premium for holding long-dated UK debt.