Gilt yields soar again as No10 turmoil rocks the markets... sparking fears of a Liz Truss-style financial crisis
The boss of one of Britain's biggest banks has called for 'stability' and 'certainty' as doubts over Sir Keir Starmer's future wreaked havoc on the bond markets.With Labour's meltdown over Lord Mandelson leaving the prime minister on the brink, the yield on ten-year gilts - a key measure of how much it costs the UK government to borrow - jumped to over 4.6 per cent.Analysts said investors are worried that the downfall of Sir Keir could see a more Left-wing prime minister take his place – leading to even higher borrowing and more spending.‘If we do get a change in the premiership, the replacement is likely to be from the left,’ said Mohit Kumar, chief European economist at Jefferies.Experts even warned Britain could face 'another Truss moment'. Crisis: Morgan McSweeney and Sir Keir StarmerAsked about the turmoil, NatWest chief executive Paul Thwaite said: 'What all businesses need, what consumers need, is stability, certainty and growth.'They're the conditions that create the right environment so that's what I would be looking for, that's what any business leader would be looking for.'The ructions on the bond markets - and the intervention by one of Britain's most powerful bankers - came as Sir Keir reels from the resignation of adviser Morgan McSweeney and communications chief Tim Allan.In a potentially explosive development, Scottish Labour leader Anas Sarwar called for the PM to go over the Mandelson scandal, having already told him to stay away from Scotland because he is politically toxic.The turmoil has raised fears that Sir Keir could be on the verge of being unseated and replaced with a Labour left-winger.The comments came as the pound skidded lower against the dollar and the euro and UK government borrowing costs edged higher.Sterling fell as low as $1.3583 and €1.1435.‘International investors just see instability and want a premium,’ said Gordon Shannon, a fund manager at TwentyFour Asset Management.Kallum Pickering, chief economist at City investment bank Peel Hunt, said that while ‘another Truss moment’ was ‘unlikely’ it was ‘far from impossible’.This referred to the implosion on the bond markets after the disastrous Liz Truss mini-Budget in September 2022.Concerns over her plans tax and spending plans sent gilt yields soaring – though they have been higher since Labour took office.Mr Pickering warned a Left-wing Labour leader such as Angela Rayner or Andy Burnham could have a similar impact if they unleash a fresh wave of borrowing.‘Whereas a Streeting-Reeves combination would be the least disruptive outcome, and markets could take that in their stride, Rayner or Burnham with a more left-leaning chancellor could trigger serious worries and amplify the so-called moron premium which is already keeping UK government borrowing costs the highest in the G7,’ he said.‘Skittish bond markets would react badly to any policies perceived as anti-growth or inflationary – such as larger spending and borrowing, higher taxes on profits and jobs, and increased red tape in labour markets.‘In the case a leadership election is triggered, expect sterling to weaken and government bond yields to rise as markets factor in tail risks. UK equities may also come under pressure as investors factor in higher policy uncertainty.‘Another Truss moment? Unlikely, but far from impossible.’Enrique Diaz-Alvarez, chief economist at global financial services firm Ebury, said: ‘The risk of a leftist turn in the government, particularly under an Angela Rayner led Labour Party, presents downside risks to the pound and British assets generally.’ AJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
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Gilt yields soar again as No10 turmoil rocks the markets... sparking fears of a Liz Truss-style financial crisis
