The British Pound weakened against the Euro as political uncertainty in the United Kingdom intensified, with over 90 Members of Parliament (MPs) calling for Prime Minister Keir Starmer to resign and several ministers and aides stepping down [1][2][3]. This political turmoil followed the Labour Party's poor performance in recent local elections, which triggered widespread demands for Starmer's resignation [2][3]. According to Danske Bank, the EUR/GBP cross moved higher as a result of these developments, and prediction markets increased the probability of Starmer being ousted to around 70% by June and 85% by the end of 2026 [1].
Bond markets reacted sharply to the leadership crisis, with yields on UK government bonds (gilts) experiencing double-digit gains on Tuesday as investors feared a potential loosening of fiscal discipline if there were a change in leadership [1][2][3]. Specifically, 30-year gilt yields reached their highest levels since 1998 [1], and the 10-year gilt yield rose by 9 basis points to its highest level since 2008 [3]. However, as Starmer appeared to have fended off any immediate leadership challenge by Wednesday morning, gilt yields fell by 2 to 6 basis points, with the 10-year yield hovering around 5.067% according to CNBC, and 5.061% according to another CNBC report [2][3].
The State Opening of Parliament and the King's Speech took place amid this backdrop of political instability, with Starmer reportedly meeting briefly with his main leadership rival, Wes Streeting, and vowing to continue leading the Labour Party [2]. More than 100 MPs signed a statement backing Starmer to remain as Prime Minister, despite the calls for his resignation [3].
Former UK Treasury minister Jim O'Neill commented that the UK faces among the highest borrowing costs of any developed nation and outlined four key lessons for the government: reforming the state pension triple lock, addressing misallocated welfare payments, reforming housing market taxation, and curbing unsustainable NHS spending [3]. O'Neill criticized the political instability and frequent leadership changes, warning that such volatility is dangerous given the fragility of the UK's current electoral status [2][3]. Neil Wilson, Saxo UK's investor strategist, noted that while the King's Speech may offer Starmer a temporary reprieve, bond markets remain on edge [2].
CONCLUSION
The UK is experiencing significant political and market turbulence as Prime Minister Starmer faces mounting calls for his resignation, leading to sharp movements in gilt yields and a weaker pound. While Starmer has managed to stabilize his position for now, markets remain cautious, and analysts warn that ongoing instability could further undermine investor confidence and fiscal discipline.