Britain's long-term borrowing costs have surged to their highest level since 1998, as the Iran war drives up energy costs and speculation mounts over Prime Minister Keir Starmer's political future. The yield on 30-year UK government bonds, known as gilts, rose to 5.76%, surpassing the 27-year high set last September when concerns about the UK's finances rattled bond markets.
Bond Yields and Market Dynamics
Bond yields rise when prices fall. The latest sell-off follows a sharp jump in oil prices after tensions escalated in the Middle East, with Donald Trump deploying warships to break Iran's blockade of the Strait of Hormuz. The failure to reopen the strait has driven oil prices to multi-year highs, fueling inflation and threatening economic growth, which could further increase government borrowing costs.
Political Uncertainty Adds Pressure
There are growing concerns in the City that the government's commitment to its fiscal rules could weaken if Starmer is forced out of office after this week's local elections. On Friday, The Guardian reported that allies of Greater Manchester Mayor Andy Burnham claim he has a credible plan to return to Westminster within weeks. Analysts at ING warned last week that UK bond yields could rise further amid a deeper political crisis, noting that Britain's local elections come at a particularly sensitive moment for financial markets.
Government bond yields have now risen above 5% for the first time since 2008, a period when the economy was growing significantly faster than today. While much of the recent spike is attributed to inflation, political factors cannot be ignored. Prime Minister Keir Starmer is fighting for political survival, and a poor election result on 7 May could prove fatal to his leadership.
