Starmer’s political death spiral is about to trigger financial chaos
Starmer’s political death spiral is about to trigger financial chaos
Matthew LynnTue, May 12, 2026 at 9:21 AM UTC
1
We will be heading into a storm without a captain at the helm - Leon Neal/Getty Images
The Prime Minister has still to make a decision on his future, while the rival candidates for the leadership are preparing their campaigns. We will find out over the next few hours whether Sir Keir Starmer will cling to office, or whether he will be forced to set out a timetable for his departure over the summer.
One point is already clear, however. The bond markets have given up on Labour’s chaotic in-fighting. Whoever takes over, or indeed Starmer himself if he survives, will have to deal with a financial crisis.
With the Prime Minister’s fate in the balance, yields on Britain’s debts are already spiking sharply upwards. The benchmark 10-year yield was up to 5.11 per cent this morning, while the 30-year yield, a better measure of confidence in the long-term prospects of the British economy, rose to 5.78 per cent, its highest level for 28 years. That matters.
Britain’s outstanding national debt already stands at a terrifying £2.9tn, and it is currently climbing by more than £100bn every year. The annual interest payments on all that have climbed to £110bn, and as yields rise, that will keep going up relentlessly. Look at it this way. A single 1 per cent rise in the yield costs the country more than £10bn over a five-year period. The “fiscal headroom” is about to disappear.
It is going to get a lot worse if the country faces weeks of uncertainty while the party chooses a new leader. The soft-Left Tribune Group has already set out a “plan”, if that is not too dignified a word, for looser fiscal rules, along with some form of wealth tax. And the main leadership contenders will have to promise to spend and borrow more if they are to have any hope of winning the support of the unions and party activists who will decide the contest.
Advertisement
There is little prospect of the Bank of England stepping in by printing money to buy up bonds. If anything, with inflation rising after the war in Iran, it will have to push up interest rates instead.
Meanwhile, for the length of the contest, Britain will effectively have no Chancellor. It is impossible to imagine that whoever takes over will keep Rachel Reeves in office – indeed Reeves’s dreadful first Budget is in many ways responsible for the mess the Government finds itself in – but neither will they be able to appoint a successor. Britain will be heading into a storm without a captain at the helm.
Add it all up, and one point is clear: the death spiral of the Starmer administration is about to trigger a full-scale financial crisis. Yields will keep going higher, the interest bills will keep rising, and before long, to complete the toxic mix, sterling will be in freefall.
If Starmer stays, at some point, both he and Reeves will have to try and calm the markets with a mix of tax rises and spending cuts to stabilise the economy. If he goes, his successor will inherit a collapsing debt market, and will have to start his or her term in office with an emergency budget, putting up taxes to pay all the extra interest that has to be paid on our existing stock of debt.
Either way, the reckoning for the fiscal profligacy of the last two years, and for the failure to keep public spending under control, is about to arrive. It is going to get very messy over the next few weeks.
Source: “AOL Money”
