Starmer vows to fight on as Labour revolt rattles gilt market

Keir Starmer is trying to hold off a Labour leadership revolt as gilt yields rise and MPs press him to set out a timetable for leaving office.

British Prime Minister Keir Starmer vowed Monday to stay in office and confront the country’s “big challenges,” as a deepening Labour revolt after heavy local election losses added pressure to U.K. government borrowing costs.

The speech was an attempt to steady both his party and the wider political environment after 42 Labour MPs were reported to be calling for his resignation as of Sunday evening. The local vote did not change control of the national government, but it was treated as a sharp test of public confidence in Labour and its leader.

Starmer acknowledged frustration inside and outside his party while arguing that Labour must move faster on growth, national defence, energy and Britain’s relationship with Europe. “To meet the challenges that our country faces, incremental change won’t cut it,” he said, adding: “I know I need to prove them wrong and I will.”

The pressure intensified after Labour MP Catherine West, who has pushed for a leadership contest, told the BBC after Starmer’s speech that she was informing Downing Street of her intention to gather names from colleagues demanding that he set a timetable for his departure.

Starmer has insisted he will lead Labour into the next general election, due in 2029. But speculation about a possible change of prime minister has become a market concern as investors watch Britain’s already elevated borrowing costs.

Yields on benchmark 10-year U.K. government bonds, known as gilts, were around 4.957% after Starmer’s speech Monday morning, up 4 basis points but little changed from where they were before he spoke. After West’s announcement, the sell-off strengthened, with yields rising by about 7 basis points to 4.98% by 7:20 a.m. ET, according to CNBC’s report.

Higher gilt yields matter because they can increase the cost of government borrowing, narrowing the room for fiscal choices at a time when the U.K. is already facing weak growth and persistent inflation pressures. Kallum Pickering, chief economist at Peel Hunt, told CNBC that recent moves suggested a political component to British bond yields, even though broader economic conditions were also keeping them high.

Starmer also used the speech to draw a dividing line with Nigel Farage’s Reform UK, which made sweeping gains in the local council elections, and with the Conservatives. He said those parties were “defined by breaking our relationship with Europe,” while his government would be “defined by rebuilding our relationship and by putting Britain at the heart of Europe.”

Al Jazeera reported that Starmer also vowed to nationalise British Steel, describing it as part of his pledge to deliver a stronger performance after Labour’s poor election results.

The immediate test for Starmer is whether enough Labour MPs move from public criticism to an organized leadership challenge. For markets, the next signal will be whether the political pressure eases after his speech or continues to feed into Britain’s borrowing costs.