City investors fear Labour leadership battle could push up UK bond yields, as UK borrowing jumps in May – as it happened

UK budget deficit is running higher than forecast; borrowing costs rise after Makerfield byelection as US-Iran talks are called off City economists and analysts are concerned that UK government borrowing costs could rise if the Labour Party holds a leadership race this summer. UK bond yields could be pushed higher if investors fear an increase in borrowing under a Burnham administration, as the new MP for Makerfield pledges to address the cost of living crisis. Dan Coatsworth, head of markets at AJ Bell, says there is potential for gilt yields to keep rising if Starmer “doesn’t go quietly”. With 10 and 30-year bond yields higher today (in line with other European government bonds), Coatsworth says: double quotation markFriday’s moves reflect the risk that Starmer won’t go quietly. But they also reflect the setback with the US-Iran peace deal which has caused oil prices to rise again today, and inflation fears to remain on the table, thus having a direct read-across to interest rates and bond yields. “Over the coming days, the bond market will look for clues on Burnham’s chances for getting the top job, and how he might steer Labour in a different direction. He might n