𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Britain’s long-term government borrowing costs jumped to their highest level for 28 years as City traders braced for a potential Labour leadership challenge from Andy Burnham.

The pound is also on track for its worst week since 2024 amid growing concern over political instability.

The yield on 30-year UK Government bonds, also known as gilts, lifted to fresh recent highs, rising by 16 basis points to 5.821 points.

Ten-year gilts were also suffering another sell-off, with yields firmly above 5%, up 16 basis points to 5.155%.

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 rise comes amid speculation that a new Labour leader could increase spending and government borrowing.

Greater Manchester mayor Andy Burnham declared he would seek permission from Labour’s national executive committee (NEC) to contest the by-election after the current MP, Josh Simons, announced he would quit Parliament.

Wes Streeting, the former health secretary who has also been linked to a potential leadership challenge, said Andy Burnham was Labour’s “best chance” of winning the “tough” Makerfield by-election.

The pound was also meanwhile sinking, down as much as 0.4% against the US dollar, before settling about 0.2% lower at 1.334 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 more than 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 after Mr Burnham was offered a path back to Parliament when a Labour MP stood down.

It follows Mr Streeting’s resignation on Thursday and the path of former deputy prime minister Angela Rayner’s 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.”