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Britain’s long-term government borrowing costs were under pressure once more as another wave of worry over political instability rocked bond markets and kept the pound on the back foot.

The yield on 30-year UK government bonds, also known as gilts, briefly hit a fresh 28-year intraday trading high at 5.815% before paring back gains, to stand 14 basis points up at 5.799% as Prime Minister Sir Keir Starmer came under mounting threat of a leadership challenge with Greater Manchester Mayor Andy Burnham lining himself up as a possible contender.

With potential rivals positioning themselves ready to trigger a formal challenge for the Labour Party leadership, 10-year gilts were also suffering another sell-off, with yields firmly above 5%, up 14 basis points at 5.133%.

Gilt yields move counter to the value of the bonds, which means their prices fall when yields rise.

Rising yields on these bonds mean it costs more for governments to borrow from financial markets.

The pound was also meanwhile sinking, down as much as 0.4% against the US dollar, before settling around 0.3% lower at 1.336 US dollars.

Political concerns added to worries over the inflation outlook amid the Iran war and soaring oil prices to send London’s blue chip share index sharply lower.

The FTSE 100 Index dropped 1.3% to 10234.46 in mid-morning trading on Friday, with oil prices up 3% at over 109 US dollars a barrel as a resolution to the US-Israel war on Iran proved elusive.

Chris Beauchamp, chief market analyst at investing and trading platform IG, said bond markets were fretting over the possibility of a more left-leaning premier to lead government after Greater Manchester Mayor Andy Burnham was offered a path back to Parliament when a Labour MP stood down.

It follows Wes Streeting’s move to resign as health secretary on Thursday and former deputy prime minister Angela Rayner’s path being smoothed for a potential challenge after she was cleared by HMRC of deliberate wrongdoing over her tax affairs.

Mr Beauchamp said: “Andy Burnham’s long quest to find someone to make space for him in Parliament has finally succeeded, but the prospect of the ‘King in the North’s’ return has not been good for UK borrowing costs.

“Worries about higher spending commitments have seen investors take flight from UK bonds.

“For a UK economy already facing a potential energy crisis, sapping growth, the rise in yields is particularly grim news.”

Susannah Streeter, Wealth Club’s chief investment strategist, said: “Burnham’s big hurdle of course is winning the by-election and so this leadership race looks set to be long and cumbersome.

“Another bout of political infighting, with yet another Prime Ministerial shuffle under way is hardly a good look for a country which needs to portray stability to attract investment.”