After day of ‘Starmer drama’, UK bond yields are dropping in early trading as prime minister appears to fend off leadership challenge
UK government bond prices are rallying at the start of trading, pulling down borrowing costs.
Investors appear relieved that Sir Keir Starmer is holding onto power this morning, after a challenge from health secretary Wes Streeting failed to materialise.
Streeting was due to hold talks with Starmer on Wednesday, at which he was expected to talk candidly about his concerns, with No 10 insiders suggesting he was climbing down from intense speculation that he was on the brink of running.
The Labour Party is not driven by one individual. It is shaped by its internal dynamics and by its union base, both of which tend to favour a more expansive fiscal stance. Markets understand this. They do not price the best-case scenario, they price the probability weighted outcome. Where fiscal discipline risks giving way to political pressure, yields adjust accordingly.
The reaction to Andy Burnham’s comments was telling. His remark that the UK has to “get beyond this thing of being in hock to the bond markets” reflects a strand of thinking within the party that markets instinctively reject, not the rhetoric itself, but for what it implies about relaxing fiscal constraints.
Glad to see bond yields dropping after that Streeting drama. Markets clearly prefer stability over a leadership shake-up.
Wes Streeting was supposed to challenge Starmer but backed down? Typical Labour infighting, but at least the markets are calmer today.
Andy Burnham’s comment about not being ‘in hock to bond markets’ shows some Labour figures still don’t get fiscal reality.
The article says the Labour Party’s union base favors expansive fiscal policy. That’s exactly why yields could spike again if spending gets out of hand.
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Interesting how a failed leadership challenge can save the government millions in borrowing costs. Starmer needs to keep his party in line.
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