Finance
UK borrowing costs rise as concerns about Starmer's future mount
Published by Global Banking & Finance Review®
Posted on February 5, 2026
2 min readLast updated: February 5, 2026
Quick Summary
UK borrowing costs rise as concerns over Starmer's leadership grow, impacting gilt yields and market expectations.
UK Borrowing Costs Increase Amid Concerns Over Starmer's Leadership
Impact of Political Concerns on Borrowing Costs
By Suban Abdulla
Rising Gilt Yields
LONDON, Feb 5 (Reuters) - British borrowing costs rose on Thursday as concerns mounted over whether Prime Minister Keir Starmer could survive the fallout from his decision to appoint Peter Mandelson as U.S. ambassador despite knowing about his ties to Jeffrey Epstein.
Political Pressure on Starmer
Longer-dated British government bond yields rose for a second day on Thursday, while European borrowing costs remained flat, as investors questioned whether Starmer could remain in office, just over 18 months after he won a landslide election victory.
Market Expectations for Interest Rates
Ten-year gilt yields <GB10YT=RR> rose to the highest since November 20, up about 3 basis points on the day, to 4.589% at 0812 GMT, and were last up around 4 bps.
Thirty-year bond yields touched the highest since November 26 - when finance minister Rachel Reeves delivered her second budget - also up around 3 bps at 5.375%.
Gilt yields had also risen late on Wednesday.
Starmer has come under huge pressure in recent days to explain why he appointed Mandelson as his U.S. envoy when the vetting process had flagged that he had an ongoing relationship with the late sex offender Jeffrey Epstein.
Critics in opposition parties charge that the government wanted to appoint the Labour veteran because they believed he would be able to handle U.S. President Donald Trump, meaning they may have overlooked any concerns that were raised.
Starmer has said Mandelson lied repeatedly about the depth of his ties to Epstein.
The furore dominated the front pages of the newspapers in Britain, with the Daily Mail saying Starmer was in "grave peril" and the Times stating that he was fighting for his future.
The Eurasia Group, a political risk consultancy, put the probability of a leadership challenge and Starmer's removal this year at 80%, up from 65% previously.
Expectations for rate futures were little changed. The Bank of England is expected to keep its main interest rate at 3.75% on Thursday, after cutting rates four times in 2025, and investors are pricing in one or two more reductions in borrowing costs this year.
(Reporting by Suban Abdulla and Kate HoltonEditing by William Schomberg and William James)
Key Takeaways
- •UK borrowing costs have risen due to political concerns.
- •Gilt yields have increased for two consecutive days.
- •Starmer's appointment of Mandelson has sparked controversy.
- •Investors question Starmer's ability to remain in office.
- •The Bank of England's interest rate decisions are closely watched.
Frequently Asked Questions about UK borrowing costs rise as concerns about Starmer's future mount
1What are borrowing costs?
Borrowing costs refer to the expenses incurred when taking out a loan, including interest rates and fees. Higher borrowing costs can discourage borrowing and spending.
2What is a bond yield?
A bond yield is the return an investor can expect to earn from a bond. It is often expressed as a percentage of the bond's face value.
3What are interest rates?
Interest rates are the cost of borrowing money, typically expressed as a percentage. They influence economic activity by affecting consumer and business spending.
