That’s all for today.

Jonas Goltermann, chief markets economist at Capital Economics, has a non-too-cheery thought to end the day:

The surge in long-term Gilt yields over recent weeks owes as much to the rise in energy prices as it does to the UK’s latest political melodrama. On both fronts, it looks increasingly as though things may get worse before they get better.

Here’s our news story about the swings in the bond market today:

While our Politics Liveblog has all the key developments:

After a rocky session, UK government bond prices were significantly lower as trading drew to an end in London.

That shows that the day of political drama, as Keir Starmer fought off efforts to make him step down, have pushed up UK borrowing costs as the markets anticipated the possibility of a more left-wing successor.

The UK 10-year bond yield, which hit its highest since 2008 this morning at 5.13%, has eased back to 5.1%, up from 5% yesterday (that’s a rise of 10 basis points).

Longer-dated 30-year bond yields hit their highest since 1998 earlier today, at 5.81%, and at 5pm was more than 9bps higher at 5.76%.

After surging on speculation that Starmer could be forced to lay out a departure timetable, yields eased slightly as some cabinet members – and Labour MPs – backed him.

However, with several ministers quitting today, the PM still appears in a perilous position.

Kathleen Brooks, research director at XTB, suggests the bond markets could save Starmer, given the dangers of higher borrowing costs for the UK’s public finances.

Brooks writes:

The UK still has the highest borrowing costs of any G7 member, and our yields have risen at the fastest rate since the Middle East war started. Until a challenge from the left of the Labour party is eradicated, or the government embarks on growth-positive economic policy, we do not see UK bond yields substantially falling from here.

The pound has also stabilized, and GBP/USD is just above $1.35. The market is willing to wait and see but remains extremely sensitive to news out of Westminster. Ultimately, it could be the bond market that saves Starmer, as it’s unlikely bond traders would trust anyone else at this stage.

But, with UK 10-year yields at their highest level since 2008, and 30-year yields back at 1998 levels, the recent upheaval and spike in yields could be worse than the Truss crisis in 2022.

The boss of JP Morgan has indicated that it would scrap plans for a multi-billion pound headquarters in Canary Wharf, if bank taxes were hiked by a successor to Keir Starmer.

Jamie Dimon was asked by Bloomberg TV if JPMorgan would review its plans for the new office in light of recent political instability, and replied:

“Not political instability but if they become hostile to banks again, yes.

I’ve always objected to the fact, we didn’t damage the UK in any way, we paid probably $10 billion in extra taxes by now. I don’t think that’s right or fair. If that happens too much we will reconsider.”

More here.

JP Morgan revealed plans to build a 3m sq ft tower in Canary Wharf, which will serve as its new UK headquarters, in November 2025, just hours after Rachel Reeves’s most recent budget.

Britain’s blue-chip share index has ended the day pretty much where it began!

After a session in which traders watched events in Westminster, as well as the latest US inflation report, the FTSE 100 share index has closed down just 4 points, or 0.04%, at 10,265 points.

Banks were among the fallers, with Lloyds losing 4.3% and Barclays off 3.3%, amid speculation that taxes on the financial sector could be increased by a left-leading successor to Keir Starmer.

The jump in UK borrowing costs today means that bond prices have fallen – so that investors get a better rate of return for holding British government debt.

April LaRusse, head of investment specialists at Insight Investment, warns that UK bonds have ‘decoupled’ from the rest of the bond market – if that process continues, prices could fall further, pushing bond yields higher.

LaRusse says:

“While the Middle East conflict has pushed bond yields higher across most markets, gilts have now clearly decoupled from the pack.

Investor attention has shifted to domestic political risk, particularly the possibility that a change in leadership could loosen fiscal discipline. In our view, any new leader would move quickly to reassure markets and dampen volatility. The risk is all about timing. A drawn‑out or uncertain transition, or even no change at all, keeps speculation alive, and neither outcome is market friendly.

Gilt markets appear cheap at this point, but that doesn’t mean they can’t get cheaper.”

Away from the bond market, oil is pushing higher.

Brent crude is now up almost $4 a barrel, or 3.78%, at $108.17 a barrel, as hopes of an imminent US-Iran peace deal fade.

Donald Trump’s warning yesterday that the ceasefire with Iran is on “life support” has dented hopes of an end to the conflict and a resumption of oil and gas flows through the strait of Hormuz soon.

The US defence secretary, Pete Hegseth, has told the House appropriations subcommittee on defence today that the US has a plan to escalate its activities against Iran if necessary.

City & Guilds Foundation has appointed a new chief executive as the charity navigates an official investigation into its controversial sale of the City & Guilds awarding and training business to PeopleCert last year.

Ben Blackledge is joining from WorldSkills UK, a partnership between education, industry and UK governments to promote vocational training, where he is chief executive.

He arrives as the 148-year-old body is the subject of a Charity Commission statutory inquiry, which launched in January and was mirrored a day later by PeopleCert commissioning its own internal investigation into the deal.

The appointment also comes as the foundation stands accused of attempting to dodge accountability for a “catastrophic failure of governance” by stalling on launching its own independent inquiry into the £166m deal, after members voted overwhelmingly last month for the trustee board to trigger what would be the third examination into how the charity privatised its operations.

In an announcement that avoided any mention of the various issues facing the body, Blackledge said:

“I am delighted to be joining the City & Guilds Foundation at such an important and exciting moment. The Foundation’s role has never been more vital, and I look forward to working with the outstanding team, partners and members to apply its 148-year legacy to the challenges and opportunities of today.”

On launching its own investigation, a foundation spokeswoman has previously said:

“The trustees remain committed to working constructively with members to find a clear and proportionate way forward in the best interests of the charity. We are reviewing options to shape this approach, ensuring we address members’ concerns while avoiding unnecessary duplication with the Charity Commission’s investigation. Our priority is to safeguard the integrity and future of the Institute.”

A source at a second City bank has said everyone in the business and banking community wanted predictability.

They added that there had been “quite positive signals from the City” about chancellor Rachel Reeves’ plans to generate growth, “so for anything to be derailed at this point would be damaging”.

“The worst thing at the moment would be going through another messy leadership race,” they said, adding “we don’t want to see what we experienced with the previous [Tory] government” referring to the party’s rotating cast of prime ministers.

They added:

“If you’re planning for an IPO, for example, you need stability in the markets...There’s been talk of a number of IPOs coming down the track in the UK, and that gets derailed in situations like this.”

[an IPO, or ‘initial public offering’ is a way of floating on the stock market.]

Newsflash: inflation in the US has jumped, as the Iran war drives up costs.

US consumer prices rose by 3.8% in the year to April, and by 0.6% during last month alone, new data from the US Bureau of Labor Statistics shows.

Energy prices jumped by 3.8% in April alone, the report shows, and were up 17.9% on an annual basis, as Americans were hit by surging gasoline prices.

Food prices rose by 0.5% in the month, and by 3.2% over the year.

These price rises may drive up the economic impact of the Middle East conflict triggered by Donald Trump at the end of February, and could also make it harder for US central bankers to cut interest rates soon.

UK government borrowing costs are still elevated as noon approaches, but not quite as high as they were.

Bond yields have dipped back after Keir Starmer told the cabinet he was not resigning.

After that meeting, several cabinet ministers including Peter Kyle, the business secretary, Liz Kendall, the technology secretary, and housing secretary Steve Reed told reporters they were supporting Starmer.

The 30-year bond yield is now up 9 basis points at 5.76%, having hit a new 28-year high of 5.81% this morning (see earlier post).

Ten-year bond yields are off their earlier highs too – up almost 10bps at just below 5.1%, having hit 5.13% earlier today.

Whether or not Keir Starmer is replaced, the UK faces a major energy shock from the Iran war.

A new economic outlook released by consultancy EY predicts that UK growth will be hit hard by higher oil and gas prices this year.

EY’s modelling suggests that before the Middle East conflict, UK GDP was on track for 1.3% growth in 2026. However, that has now been lowered to 0.8%, in a scenario where the strait of Hormuz reopens by the middle of 2026

But if there is an escalation and the Strait remains closed until the end of 2026, UK GDP growth could fall to 0.3% this year, EY warns.

EY also predicts the UK unemployment rate will increase slightly to 5.8% by the end of 2026 as weaker growth impacts hiring levels, before falling back to 5.2% in 2028.

An influential group of MPs has said that Labour needs an urgent renewal of economic strategy to offer voters “more than better management of decline” before the next general election.

With Keir Starmer fighting to ward off a leadership challenge, the leading backbenchers from the soft-left Tribune group published a series of essays calling for bolder action to salvage its remaining time in power.

In a foreword by the former cabinet minister Louise Haigh, and Yuan Yang, a prominent figure from Labour’s 2024 intake, the MPs issued a thinly disguised attack on Starmer amid pressure on him to set out a timeline for his departure.

The MPs wrote:

“We do not present this as the final word. They are an invitation – to challenge assumptions, test ideas, and help build a broader coalition for economic renewal. Because the economic status quo is no longer defensible.”

“And if politics is to regain trust, it must offer more than better management of decline.”

UK borrowing costs are hitting new highs during morning bond market trading.

The 30-year UK gilt yield has now nudged 5.81%, and is still trading above the 5.8% mark after Keir Starmer told his cabinet colleagues he is not leaving.

Our political editor Pippa Crerar reported a few minutes ago, on X:

BREAKING: Keir Starmer tells his cabinet this morning that he’s staying put.

“As I said yesterday, I take responsibility for these election results and I take responsibility for delivering the change we promised.

“The past 48 hours have been destabilising for government and that has a real economic cost for our country and for families.

“The Labour Party has a process for challenging a leader and that has not been triggered.

“The country expects us to get on with governing. That is what I am doing and what we must do as a Cabinet.”

Those economic costs are continuing to mount, with the 30-year bond yield now up 13bps (0.13 of a percentage point) at 5.803%.

That indicates investors remain deeply concerned about UK political turmoil.

The political turmoil in the UK has hit at a bad time for the bond market, points out Kathleen Brooks, research director at XTB.

That’s because the jump in oil prices is creating inflation risks, which pushes up government bond yields.

Brooks explains:

There is an upward bias for bond yields anyway, and the UK yields are facing a double whammy of an energy price spike and a political crisis. The risk is that we get a bond market meltdown in the UK in the coming days. If that happens, will it quiet the factions of the Labour party who have threatened to ignore the bond market, ditch fiscal rules and boost public spending even more?

In the past, Rachel Reeves has been seen as vital to the stability of the UK’s bond market because she introduced the ‘iron clad fiscal rules’ to bring down the UK’s debt levels and finance day-to-day spending with tax take.

If this is a drawn-out leadership battle, or if Starmer lays out a timetable to leave in the coming months, both Starmer and Reeves will be seen as lame ducks who have no control over the public purse. This would be a bad position for the UK to find itself in, especially since our last election was less than 2 years ago. Right now, it’s hard to see how the bond market can stabilize, and there could be further downside ahead.

Chris Beauchamp, chief market analyst at investing and trading platform IG, says:

There is no clear plan for what comes next, but markets are already pricing in a new PM who will open the floodgates on spending despite the UK’s dangerous fiscal situation.

Faced with hordes of Labour MPs worried about their re-election chances as Reform surges, a new PM will find it very hard to resist calls to spend more money in order to shore up their embattled party.

Much of the case for the UK as an investment destination rested on the Starmer/Reeves commitment to fiscal rectitude, but it is unlikely that a new leader from the left of the party would feel bound by such promises.”

Neil Wilson, investor strategist at Saxo UK, says that UK gilt yields leapt sharply as prime minister Keir Starmer faces mounting pressure to resign.

He warns:

We could see a blowout in longer-dated gilts if this turns into a dogfight– political, fiscal and inflationary risks will rise.

Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier.

The UK’s long-term cost of borrowing has hit its highest level since early in Tony Blair’s first term as prime minister, as speculation swirls over Keir Starmer’s future.

Reuters are reporting that the yield (or interest rate) on both 20 and 30-year bonds is the highest since 1998, rising over the highs seen early this month.

Here’s the details:

• UK 20-YEAR GILT YIELD RISES TO HIGHEST LEVEL SINCE JULY 1998 AT 5.734%, UP 12 BPS ON DAY - LSEG DATA

• UK 30-YEAR GILT YIELD RISES TO HIGHEST SINCE MAY 1998 AT 5.794%, UP 11 BPS ON DAY - LSEG DATA

The pound is continuing to slide – now down two-thirds of a cent against the US dollar at $1.354.

Political uncertainty in the UK is hurting the pound, as well as driving up bond yields, reports Lee Hardman, currency expert at Japanese bank MUFG.

Hardman told clients;

So far the market moves have been relatively modest but are beginning to reflect building unease over the future of Prime Minister Keir Starmer who is facing growing pressure from within the Labour party to step down.

With more than 70 Labour MPs publicly calling for Starmer to stand down, and reports that home secretary Shabana Mahmood, foreign secretary Yvette Cooper and defence secretary John Healey are privately urging Starmer to consider plans for handing control to a successor, Hardman adds:

Pressure intensified yesterday on Starmer after four ministerial aides quit the government saying they no longer believed he could tun things around.

The latest developments increasingly look like the end of the road for Keir Stamer as prime minister. A leadership contest whether immediate or more drawn out will add to political uncertainty in the near-term which is negative for the pound and gilts. The risk of a bigger sell-off will increase if Labour shift towards the left.

The London stock market has opened in the red.

The blue-chip FTSE 100 share index fell by as much as 1.1% at the start of trading, down 117 points to 10,152 points. That’s its lowest level since the end of March.

Banks are leading the fallers; NatWest (-4.6%), Lloyds Banking Group (-4.1%) and Barclays (-4%).

Derren Nathan, head of equity research at Hargreaves Lansdown, says the “seemingly unbreakable diplomatic deadlock between Tehran and Washington” is hurting stocks.

He adds:

Back at home, rising government borrowing costs aren’t helping either, with Prime Minister Sir Keir Starmer’s leadership under increasing pressure. The potential for a fiscally looser successor may be weighing on rate expectations, but the inflationary influence of higher-for-longer oil prices is likely to be the bigger driver.

Newsflash: UK government borrowing costs have risen at the start of bond market trading.

Political uncertainty is gripping the markets, after Keir Starmer was urged to set out an orderly timetable for his departure ahead of this morning’s cabinet meeting.

The yield, or interest rate, on benchmark 10-year UK gilts has risen by almost 10 basis points (0.1 of a percentage point) to 5.1%, up from 5% last night.

Bond yields rise when prices fall, and this morning’s move adds to a rise in borrowing costs yesterday.

Longer-dated borrowing costs have also risen. The yield on 30-year UK bonds has risen by 10 basis points to over 5.77%, very close to the 28-year high (5.78%) set earlier this month.

Michael Brown, senior research strategist at brokerage Pepperstone, says bond investors are concerned about a possible change of prime minister:

The market’s main concern here, and the reason for this Gilt underperformance, is twofold – firstly, that a new PM would shift to the left, and loosen/scrap the UK’s current fiscal rules; and, secondly, that doing so would exacerbate the UK’s inflation problem.

With political uncertainty likely to persist for a while, and the fiscal rhetoric only set to ramp up, those considering buying the dip in Gilts may be minded to wait a while.

The City financial markets have lifted their forecasts for UK interest rate rises this year.

The money markets are now pricing in 68 basis points (0.68 of a percentage point) of interest rate increases from the Bank of England by December.

That’s up from 56bps yesterday.

This indicates traders are more confident the BoE will raise interest rates twice this year (which would increase Bank rate by 50bps), and see a third hike as more possible.

That follows a rise in the oil price today (Brent crude is up 1.25% to $105.50 a barrel), which is inflationary.

It may also reflect the political uncertainty (if a new prime minister loosened fiscal policy through higher spending and borrowing, the BoE might respond with tighter monetary policy to dampen the inflation risks).

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Another UK political crisis is looming over the City of London today, as prime minister Sir Keir Starmer faces more calls to set out a timetable for his departure.

The bond market is fimly in the spotlight, after government borrowing costs jumped yesterday as Starmer’s ‘make-or-break’ speech failed to reassure investors, and prompted some Labour MPs to fall for his departure.

The Guardian reported last night that two senior cabinet ministers – Yvette Cooper, the foreign secretary, and Shabana Mahmood, the home secretary – were understood to have told the prime minister he should oversee an orderly transition of power, after last week’s local elections.

The pound has dropped against the dollar this morning, down half a cent to $1.3560.

Sterling is being “weighed down by political uncertainty as PM Keir Starmer faces pressure to step down”, reports IG analyst Tony Sycamore.

City investors will be watching Westminster, where Starmer is due to hold a cabinet meeting today.

Bond yields (which rise when price fall) could push higher if traders anticipate that a change of leadership would lead to higher spending, and more borrowing, and a break from the government’s fiscal rules.

Jim Reid, strategist at Deutsche Bank, explains:

With a Cabinet meeting expected this morning, today could be a big day in determining Starmer’s future.

In response to the uncertainty, 10-year UK gilt yields rose +8.6bps to 5.00% yesterday, whilst the 30-year yield rose +9.3bps to 5.67%, given expectations that a new Labour leader may face pressure to ease the fiscal rules and raise gilt issuance.

The agenda

• 10am BST: ZEW economic sentiment index for the eurozone

• 11am BST: NFIB US business optimism index

• 1.30pm BST: US CPI inflation report for April