Bond markets ignore Starmer briefings and Westminster gossip
Bond markets shrugged at Keir Starmer’s team’s attacks against Cabinet ministers and Westminster gossip suggesting a leadership contest was emerging after investors were dragged into briefing wars.
On Tuesday night, a briefing war erupted in Westminster as Keir Starmer’s allies told journalists that there would be a rout in the bond markets if the Prime Minister faced a leadership challenge.
But UK government bonds, known as gilts, were barely changed in the early hours of trading on Wednesday,
Thirty-year gilt yields, which move inversely to gilt prices, hovered around 5.2 per cent, only around two basis points above the closing trading price for Tuesday.
Ten-year gilt yields were also barely changed as they inched up by two basis points, translating into marginally higher government borrowing costs.
Yields fell over the course of Tuesday after a rise in unemployment increased the chances of an interest rate cut at the Bank of England’s next meeting in December.
On Thursday night, several reports emerged stating Keir Starmer would fight back against any challenge to his leadership after the Budget.
In a co-ordinated briefing campaign to journalists across Westminster, Number 10 officials accused health secretary Wes Streeting – and other Cabinet ministers – of garnering support among backbenchers to ready himself for a leadership campaign.
On a morning round of interviews, Streeting hit back at Number 10 officials’ briefing campaign against him and denied suggestions he was looking to oppose the Prime Minister.
“It’s a totally self-defeating briefing, not least because it’s not true and I don’t understand how anyone thinks it’s helpful to the Prime Minister either,” Streeting told Sky News.
“I do think that going out and calling your Labour MPs feral is not very helpful.
“I do think that trying to kneecap one of your own team when they are out, not just making the case for the Government, but actually delivering the change that we promised, I think that is also self-defeating and self-destructive behaviour.”
Fears of a leadership challenge appear to reflect Downing Street’s nervousness about the upcoming Budget where Rachel Reeves is expected to break Labour manifesto commitments and raise more than £30bn in taxes.
Educating Westminister on bond markets
It has been suggested that Number 10 strategists fear advisers and MPs misunderstand the importance of financial markets to public finances.
Starmer’s team told journalists that investors would lose confidence in the Labour government if a leadership contest took place as investors trusted Reeves and Starmer.
Bloomberg separately reported that the economist and former Treasury minister Kitty Ussher briefed government officials on gilt markets a fortnight ago, arguing that gilt yields remained high because of the influence of backbenchers on policies including welfare reforms.
The Chancellor and Treasury officials are keeping a close eye on market movements ahead of the Budget given its potential to wreak havoc on public finances.
Small changes in bond markets can cost the government hundreds of millions of pounds, with a recent fall in yields ahead of the Budget potentially saving the Treasury around £2bn according to analysts.
The Office for Budget Responsibility (OBR) predicted in March that government borrowing costs, through debt interest payments, would soar above £110bn over the course of this year.