Time to recap….

The cost of UK government borrowing has risen as Keir Starmer’s crucial speech failed to dispel investor “jitters” in the bond markets over political instability combined with fears of rising inflation.

The yield, effectively the interest rate, on the benchmark 10-year UK government bonds (known as gilts) rose by just over eight basis points (or 0.08 of a percentage point) to 5% today.

The yield on 30-year gilts rose over 10 basis points to 5.68%, edging closer to the 28-year high of 5.78% last week when uncertainty about Starmer’s future as prime minister was intensifying.

In his speech, Starmer said he would fight any leadership challenge and would not walk away from his responsibilities after Labour’s drubbing in local elections in England and parliamentary contests in Scotland and Wales last week.

Analysts said that Keir Starmer’s speech had failed to reassure bond markets.

In other news

The Item Club have estimated the UK economy will shed 163,000 jobs this year, as the Iran war drive up energy costs and hits household disposable income.

Heathrow has reported a drop in passenger numbers in April, as the Middle East conflict hit flights.

Factory gate inflation in China has hit its highest in almost four years.

The German energy group E.ON has agreed to buy struggling UK rival Ovo in a deal that would create Britain’s biggest gas and electricity supplier by number of households served.

Bank of England deputy governor Sam Woods has warned of “significant disruption to come” for banking customers due to rapid developments in AI.

Speaking during a fireside chat at the UK Finance Growth Delivery Summit at Drapers Hall in London, Woods said the advent of AI models like Anthropic’s Mythos have notably increased the ability to find weaknesses in bank’s tech systems.

He said that would result in banks ramping up efforts to get ahead of bad actors, by “patching” their IT infrastructure more often.

While that may sound like positive news, patching is one of the most common causes of banking outages, leading Woods to warn of “significant disruption to come.”

(A reminder that customers of the UK’s nine largest banks and building societies suffered the equivalent of 33 days of outages - around 803 hours - between January 2023 and February 2025, according to the Treasury Committee. )

Political uncertainty hasn’t stopped London’s blue-chip share index gaining ground today.

The FTSE 100 share index has closed 36 points higher, or +0.36%, at 10,269 points.

In truth, the Footsie is a better gauge of the global economy than the domestic one.

Top riser was Airtel Africa, up 15% after Indian parent Bharti revealed it is considering increasing its stake in the business.

Mining companies also rallied.

With UK bond yields still higher as trading draws towards a close, Professor Costas Milas of the University of Liverpool tells us:

There is no doubt that most of the latest rise in UK yields is due to higher, and sticky, inflation compared to other EU countries and/or the US.

Nevertheless, the ongoing political instability, which raises the issue of how well the country can be governed, adds significantly to our cost of borrowing.

Recall that the Bank of England currently pursues active Quantitative Tightening policies (I.e. it sells UK bonds; the reversal of QE) which also contribute to higher yields. It would be wrong for analysts/commentators/experts to call for a QT halt for two reasons.

First, the BoE would then be accused of interfering with political issues. Second, abandoning (albeit temporarily) QT, would add further to inflation pressures at the very time the BoE is trying to find a way of dealing with them...

US home sales rose by less than expected last month, as higher interest rates hit demand.

Sales of existing homes rose by 0.2% last month to a seasonally adjusted annual rate of 4.02m units, the National Association of Realtors has reported, below forecasts of a rise to 4.05m units.

Lawrence Yun, the NAR’s chief economist, says:

“Despite mixed macroeconomic signals, including a record-high stock market and historically low consumer confidence, home sales were modestly boosted by the continued improvement in housing affordability.”

At least one in seven UK workers had their employment rights violated between 2023 and 2025, a report by University College London suggests.

Researchers from UCL found that at least 5.4 million workers had faced clear violations of UK employment law, including being paid below the national minimum wage, charged work-finding fees, and not receiving payslips or contracts.

The team spoke to representative sample of more than 4,000 UK workers about their experiences at work over the two year period. They found that 6.1% were paid below the national minimum wage, a rate four times higher than the previous estimate of 1.6% published by the Office for National Statistics.

Low-income workers were found to be particularly vulnerable, with the rate of violations rising to more than one in four (25.6%) for employees from minority-ethnic backgrounds or in non-traditional jobs.

Approximately 26 to 28 million people, or 70% of the workforce, have experienced at least one of a broader range of harms, also including potentially illegal or otherwise damaging work practices, according to the researchers. These other negative impacts included working extra hours unpaid, physical injuries in the workplace, and bullying or harassment.

“Not all breaches of the law are deliberate and not all harmful behaviour is illegal,” said UCL professor Ella Cockbain, who co-led the project. “But the sheer scale of problems identified suggests widespread non-compliance and other harms at work.”

The report recommended the government improve communications about workers’ rights, and create easier and safer methods for reporting abuses, including multi-lingual communications and safeguards for migrant workers.

Cockbain added:

“The received wisdom that there are a few ‘bad apples’ among employers is simply not tenable anymore. We found problems across the system, and rights on paper did not necessarily translate into rights in practice. The results call for concerted action to improve worker protections and their enforcement.”

Since the research period, new legislation under the Employment Rights Act, which came into force last month has improved a number of conditions for employees and workers, including guaranteed hours and payment for short-notice cancellation of shifts, a ban on fire-and-rehire in most cases, paternity and parental leave from day one and stronger trade union rights.

The research was conducted by UCL in collaboration with the University of Gloucester, and co-funded by the Department for Business and Trade and the Economic and Social Research Council. It was published by the newly established Fair Work Agency.

UK 10-year bond yields have just hit the 5% milestone.

That’s a jump of eight basis points (0.08 of a percentage point), to the highest level since last Wednesday, approaching their highest level since the 2008 financial crisis.

UK government borrowing costs are creeping a little higher after a morning of rising political jitters.

The yield, or interest rate, on UK 30-year bonds is now up 8 basis points (0.08 of a percentage point) at 5.65%, up from 5.57% on Friday night. That’s higher than just before Keir Starmer’s speech this morning, when they were up about 5bps.

Benchmark 10-year bond yields have risen higher too – now up 6bps, having been 4bps higher earlier in the morning.

Rising bond yields indicate that bond prices have dropped, suggesting less appetite for UK debt and pushing up the cost of borrowing.

These increases comes as Labour MP, David Smith, has said Starmer should set a timetable for his departure and that the government neeed “to act faster, and be more radical”.

Update: Labour MP Catherine West, who announced a challenge to Starmer over the weekend, has now said she wants the prime minister to set a timetable of September for an orderly departure.

Susannah Streeter, chief investment strategist at Wealth Club, says there are concerns in the bond markets that a change of Prime Minister would prompt wider turmoil at the top of government, and less focus on fiscal rules.

Streeter writes:

“Keir Starmer’s address to the nation hasn’t done the trick of calming bond markets. There is still a sense of jitters playing out as concerns about political instability collide with inflationary fears prompted by the ongoing conflict in the Middle East. His speech was designed to project a ‘keep calm and carry on’ message, but the worry is that it lacks the real substance needed to keep Labour MPs on side.

Ten-year gilt yields have crept higher, nudging 5% once more, while longer-dated government debt remains hovering above 5.6%. They have not been at this level for a sustained period since the late 1990s.

The telecoms regulator has received more than 100,000 complaints from O2 and Sky mobile customers angry over the introduction of surprise price rises.

Ofcom said that the issue of mid-contract price rises foisted on mobile customers, which has resulted in an exodus of customers and provoked an angry response from the government, fuelled the first quarterly increase in complaints about services by the UK’s major telecoms companies for two-and-a-half years.

Complaints about O2, the UK’s second biggest mobile operator with 12.5m consumer customers, more than tripled quarter-on-quarter in the first three months of the year.

The company, which is owned by Virgin Media O2, faced a backlash in October when it announced that mobile bills would rise by £2.50 a month for all customers, the equivalent of £30 a year, from last month.

This is 70p, or 40%, more than the £1.80 increase customers were informed of when they initially signed up to their contracts.

Ofcom said that the rate of complaints about O2 soared from just two per 1,000 customers in the fourth quarter last year to seven per 1,000 customers in the first three months this year.

This works out to almost 87,000 complaints, based on O2’s consumer customer base, and made the mobile network the most-complained about by some distance in Ofcom’s report.

The average across the seven mobile operators tracked by Ofcom was a complaint level of three per 1,000 customers.

The move by O2 sparked a rebuke from the chancellor, Rachel Reeves, and Liz Kendall, the technology secretary.

A customer backlash saw O2 lose 165,000 customers in the fourth quarter last year, with the company attributing about 110,000 of those directly to price increases.

Complaints to Ofcom about Sky Mobile, which is estimated to have almost 4m customers, almost doubled in the latest quarterly report.

Sky received five complaints per 1,000 customers, up from three per 1,000 in the fourth quarter, which works out to almost 20,000 complaints to Ofcom.

At the beginning of the year Sky announced that most of its mobile customers would see their monthly bill increase by £1.50, an annual increase of £18 a year, with the price rise coming in to force from Valentine’s Day.

The company said that it was the first mid-contract price rise it had implemented for mobile customers in more than seven years.

Last January, Ofcom introduced new rules banning mid-contract price rises linked to inflation, and said that telecoms companies must tell customers up front in “pounds and pence” about any future price rises.

“It is disappointing to see an increase in customers complaints during this quarter, especially following a sustained period of decreases in the complaints we received about telecoms companies,” said Cristina Luna-Esteban, Ofcom’s director of consumers and retail markets. “However, a main driver of these complaints appears to be unexpected mid-contract price rise announcements for some mobile customers in the Autumn of 2025.”

The UK bond market is “relatively stable” after Keir Starmer came out fighting this morning, reports Kathleen Brooks, research director at XTB.

She explains:

Although the PM faced challenges to his leadership over the weekend, there has been no knockout blow, and so far on Monday, the markets are calm, yields are moderately higher, and the pound remain above $1.36, even though the dollar is higher on a broad basis today.

For now, it looks like the market is not taking Angela Rayner’s proposal for how to reinvigorate the economy and Labour’s chances seriously. She doesn’t seem to grasp policy trade-offs, for example, she says that creating jobs for young people can go hand in hand with a higher minimum wage. Although the polls give a damning verdict on this government’s track record so far, the markets are clearly willing to ignore the internal fighting going on in the Labour party this week.

The relatively mild reaction in the bond market, 10-year Gilt yields are higher by 4bps, and it remains below 5%, suggests that traders do not believe that the threat to Keir Starmer will materialise. It would need a bigger blow to send yields higher, at this stage. If Starmer can get over this challenge, then the focus will go back to the data: can the economy grow, and can the public debt remain stable? If those things change, potentially because of a new leader, then the Gilt market will react.

In the energy world, Germany’s E.On has agreed to buy rival Ovo to create one of Britain’s largest suppliers.

The deal brings together two of the UK’s larger energy suppliers.

In the UK, E.On serves nearly one in seven households and businesses, while Ovo has four million home energy customers.

E.On says existing tariffs will be honoured, and service will continue unchanged.

Chris Norbury, CEO of E.ON UK, says the deal will create a retailer with the capability, the technology and the customer base to make “new energy work for everyone”.

Norbury explains:

“For decades the UK energy system focused too much on those upstream. Now is our opportunity to change that. Solar, batteries, EVs and a retailer built to orchestrate. That is what this deal is about: customers in control and new energy that works for everyone.”

Chris Houghton, CEO of OVO, says:

“The energy market has fundamentally changed in recent years. OVO was founded to challenge the status quo, and we’ve built a strong retail business focused on delivering for customers and supporting the transition to cleaner energy.

“As the market has evolved, scale and access to significant long-term capital for the energy transition have become non-negotiable. Following a thorough review, we believe this decision gives the business the strongest footing for the future.

During his leadership reset speech, Keir Starmer has confirmed that the government will nationalise British Steel.

The PM describes steel as “the ultimate sovereign capability”, arging that strong nations in today’s world need to make steel.

And he declares:

I can announce that legislation will be brought forward this week to give the government powers [subject to a public interest test], to take full national ownership of British Steel.

‘This week’ suggests it will be part of the new legislative programme laid out in the king’s speech on Wednesday.

British Steel employs 3,500 people at its plant in Scunthorpe, and came under government control last April amid fears that its owner, Jingye, was planning to shut down the site.

UK goverment borrowing costs have risen at the start of trading, lifted by inflation concerns and uncertainty over Keir Starmer’s future.

The yield, or interest rate, on UK 30-year bonds is up around six basis points (0.06 of a percentage point) at 5.63%.

The benchmark 10-year bond yield has also risen, up 5bps to 4.96%.

Yields rise when bond prices fall. These moves reverse the falls seen on Friday, when Starmer pledged to stay on as prime minister despite the poor local election results.

Today, the PM is due to give a speech in which he’ll promise to “face up to the big challenges”, but his position is looking more precarious after 40 Labour MPs called for him to set a date to step down, and Labour backbencher Catherine West threatened too launch a “stalking horse” challenge if Starmer didn’t set out a timetable to step down.

Investors may be anticipating that a change of leadership would result in higher government spending, and borrowing.

Michael Brown, senior research strategist at Pepperstone, explains:

The triggering of a leadership election, and a subsequent change in Prime Minister, leaves the GBP [the pound] and Gilts [UK government bonds] not only grappling with a ratcheting up of political uncertainty, but also being forced to face up to a likely more left-wing successor to Starmer.

Such an outcome would, in all likelihood, lead to a substantial loosening of the ‘fiscal rules’, along with considerably higher government spending, and even higher taxes, possibly even including a manifesto breach in raising NI, VAT, or income tax.

But… the jump in the oil price is also a factor pushing up government bond yields, as it threatens to create higher inflation, making it harder for central banks to cut interest rates.

The Iran oil shock has pushed Chinese factory inflation to its highest in nearly four years.

China’s producer price inflation has jumped to a 45-month high of 2.8% in April, up from just 0.5% in March, National Bureau of Statistics (NBS) data showed.

The NBS attributed higher factory-gate inflation to rising prices in sectors such as non-ferrous metals, oil and gas and tech equipment.

Consumer price inflation in China has also jumped, up to 1.2% in April from 1% in March.

Lynn Song, economist at ING, explains:

The impact of higher energy prices stemming from the Iran war was clear in the [consumer inflation] data. We saw a 17.4% YoY surge in energy for the transportation subcategory, which rose 11.5% month-on-month after a 10% spike in last month’s data.

China’s gasoline prices have risen by less than crude oil prices since the start of the Iran War, suggesting that there’s still likely upside ahead for this subcategory if oil prices stay elevated. The impact of higher energy prices stemming from the Iran war was clear in the data. We saw a 17.4% YoY surge in energy for the transportation subcategory, which rose 11.5% month-on-month after a 10% spike in last month’s data.

China’s gasoline prices have risen by less than crude oil prices since the start of the Iran War, suggesting that there’s still likely upside ahead for this subcategory if oil prices stay elevated.

Sterling is making a poor start to the new trading week, dropping by half a cent against the US dollar.

The pound has dropped to $1.358, wiping out most of Friday’s gains. Traders are watching political tensions built in Westminster, as the uncertainty over Keir Starmer’s future could weaken demand for UK assets.

But dollar strength is another factor this morning.

Tony Sycamore, analyst at IG, tells us:

Some of that [the pound’s weakness] is to do with the US dollar catching a bid on the reopen this morning on risk aversion flows after the Iranian response to the US peace plan.

The Iran war has hit passenger numbers at the UK’s largest airport.

Heathrow has reported this morning that passenger numbers in April fell 5% to 6.7 million, which it says reflects “the ongoing impact of the Middle East conflict on some markets and short-term adjustments to travel plans”.

The airport is also planning to review its 2026 passenger forecast, and update it in June.

Heathrow CEO Thomas Woldbye says:

“We know passengers want certainty when planning their hard-earned summer holidays, so we are supporting Government and airlines as they work through their plans to get passengers on their journeys.

While we have seen some short‑term disruption linked to the Middle East conflict, demand for travel remains strong with current fuel supplies stable. April was still our busiest month so far this year, underlining the strength of a global hub airport that can adapt quickly in times of uncertainty.”

The oil price has jumped 4% this morning as hopes of a breakthrough in the US-Iran peace talks falter.

Brent crude, the international benchmark, is rallying after president Donald Trump said on Sunday that Iran’s response to a US proposal was “unacceptable”.

The ongoing deadlock is fuelling supply fears as the Strait of Hormuz stayed largely closed.

Brent crude futures are up $4 or 3.95% this morning at $105.30 a barrel.

Mohit Kumar, economist at Jefferies, argues that we are still moving towards a deal, but both parties want to have an upper hand in negotiations, telling clients:

Both Trump and Iran rejected each other’s proposals to end the war. Iran refused to dismantle its nuclear program, which has been the key demand from Trump. The Strait of Hormuz remains practically closed. Trump does want a deal, but he needs to show to his supporters that US managed to secure a deal on nuclear, which was the whole point of going into the war.

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

The economic woes caused by the Iran war are expected to cost the British economy jobs this year.

With no sign of an end to the conflict, the latest regional outlook from the Item Club shows the UK economy is expected to shed 163,000 jobs this year.

It warns that lower income regions – such as South Wales and the Humber – will be hit hardest by the economic shock from the Middle East.

Both areas are heavily reliant on manufacturing and construction industries, which are suffering from higher energy costs and supply disruption.

Item Club, an economic forecasting group, predicts 5,700 jobs will be lost in South Wales, and 2,800 in the Humber over the year.

But the economic damage from the energy shock will run wider – as households across the country cut back on discretionary spending in the face of a surge in the cost of living.

That will hit the retail and hospitality sectors, with Item Club predicting that employment in London will drop by 25,000 this year as its retail and hospitality sector slows, with a 12,500 reduction in Birmingham, 9,800 drop in Leeds and 6,200 decline in Glasgow.

Tim Lyne, economic adviser to the Item Club, says:

“Some of the lowest income regions will feel the biggest effects of the manufacturing and construction sectors reducing headcount in the face of rising energy prices and supply chain disruption.

“While consumers in these areas typically have less rainy-day savings, which will reduce spending in the retail and hospitality sectors.”

This forecast of rising unemployment will not lift the government’s spirits, with Keir Starmer facing a fight for his political life today after last week’s local election results.

The agenda

• 1pm BST: UK Finance hosts ‘Growth Delivery Summit’

• 3pm BST: US existing home sales report for April