Susannah Streeter, chief investment strategist at Wealth Club, said: “Keir Starmer’s address to the nation hasn’t done the trick of calming bond markets.
“There is still a sense of jitters playing out as concerns about political instability collide with inflationary fears prompted by the ongoing conflict in the Middle East.
“His speech was designed to project a ‘keep calm and carry on’ message, but the worry is that it lacks the real substance needed to keep Labour MPs on side.
“Ten-year gilt yields have crept higher, nudging five per cent once more, while longer-dated government debt remains hovering above 5.6 per cent. They have not been at this level for a sustained period since the late 1990s.
“The concern is that a change of Prime Minister would prompt wider turmoil at the top of government.
“It could see the Treasury’s focus on adhering to fiscal rules derailed if a new guard is brought in to pacify Labour’s rank and file.
“Political turbulence is never a good look for a nation that needs to project stability in order to attract long-term investment.
“Right now, with clamour for Starmer’s replacement continuing off the back of highly fractious local election results, the UK is back in the instability spotlight.
“The rise in gilt yields makes the government’s position even trickier, given that it further constrains its ability to support households in areas likely to be hardest hit by the Middle East conflict.
“Humber and South Wales look set to see stark job losses, according to the latest EY Item Club analysis.
“Both areas have seen a surge in votes for Reform UK, a trend which has helped fuel the latest crisis facing the Prime Minister.
“The political challenge is increasingly becoming an economic one, with markets demanding ever greater reassurance.
“The longer doubts persist over the government’s stability, the greater the risk that market anxiety perpetuates the problem.”
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