UK Bond Market Under Pressure Amid Political Turmoil
Published on 9 February 2026 by Kathleen Brooks, Research Director UK
Key Takeaways
- UK Prime Minister Kier Starmer faces increasing pressure.
- Political risk premium negatively impacts UK asset prices.
Current Situation
The UK bond market is experiencing significant pressure as Prime Minister Kier Starmer grapples with internal party dissent following the Peter Mandelson scandal. The political landscape is fraught with uncertainty, leading to a rise in the political risk premium affecting UK asset prices.
Starmer's leadership is under scrutiny, especially after losing two key allies and facing calls for his resignation from the Labour Party leader in Scotland. The upcoming local elections in May add to the urgency of the situation.
Impact on the Bond Market
UK bond yields are notably underperforming, particularly at the long end of the Gilt curve. The 10-year yield has increased by 6 basis points, while the 30-year yield has reached its highest level since November of the previous year, now standing at 5.4%.
This trend raises concerns for the Chancellor, who is striving to maintain fiscal stability amidst political upheaval. The potential for Starmer's replacement could lead to further instability, marking the fifth prime ministerial change since 2020, in stark contrast to Italy's more stable political environment.
Comparative Analysis: UK vs. Japan
The political situation in the UK is contrasted sharply with Japan, where Prime Minister Takaichi has secured a supermajority and implemented pro-growth policies, resulting in a record high for the Nikkei index. This raises questions about whether the UK can adopt similar strategies to enhance economic stability and investor confidence.
Outlook
The bond market will be a critical area to monitor in the coming days. If Starmer manages to retain his position, UK yields may experience a slight decline. However, the ongoing tensions within the Labour Party regarding fiscal policies could keep investors on edge, leading to potential selling pressure on UK bonds as the local elections approach.
Should Starmer resign, the market may react negatively, anticipating a higher debt burden under new leadership, which could further weaken the pound.