UK government borrowing costs hit 28-year high on leadership uncertainty

Andrew Prosser, head of investments at InvestEngine, said: “The speed at which developments around Keir Starmer’s leadership are changing is rapid.

“Just days after dozens of MPs were publicly questioning his future, several senior cabinet ministers have now come out strongly in support of him.

“Political uncertainty tends to hit bond markets first, and we’re already seeing that reflected in rising gilt yields.

“Thirty-year gilt yields have climbed to around 5.79 per cent, their highest level since 1998, while 10-year yields have risen to 5.10 per cent – their highest level since 2008.

“Higher gilt yields increase the government’s borrowing costs and can also push up borrowing costs across the wider economy, including mortgages and loans.

“That said, if political uncertainty weakens sterling, it can increase the sterling value of overseas investments and the foreign currency earnings of multinational companies.

“Around 75 per cent of FTSE 100 revenues are generated overseas, so when sterling falls those overseas earnings become more valuable in pound terms. Political instability can therefore create both risks and opportunities for investors.

“Those who want to grow their money over the long term should not be worried. Political upheaval caused by changes of Prime Minister, budget crises, referendum results is nothing we haven’t seen before.

“In the short term, it can move markets. But zoom out and the picture looks different. Markets have recovered from every one of these moments so far, and often quicker than expected.

“The investors who tend to come out ahead through periods like this are the ones who stay diversified and stay invested. Often the best thing to do is ignore the noise and just sit on your hands.

“Our advice is that long-term investors should avoid making knee-jerk decisions, and that time in the market, as ever, matters more than timing the market.”