Wary investors are demanding a higher price to lend to Britain, with UK bond yields climbing to their highest level since 1998 as Keir Starmer battles for his political life.
Political uncertainty is not the only factor. Rising bond yields is a global phenomenon, with rising energy prices pushing up inflation expectations and, with them, borrowing costs.
Britain is also structurally exposed, with high debt and weak growth leaving it especially vulnerable. This is not, therefore, a rerun of Liz Truss’s brief, combustible premiership, when investors demanded what TS Lombard’s Dario Perkins termed a “moron risk premium” to hold UK debt.
However, nor does it earn much confidence, and the prospect that Britain could soon be on its seventh prime minister in a decade speaks to a deeper instability.
Some senior Labour figures appear relaxed about bond market misgivings. Leadership hopeful Andy Burnham famously complained about not being “in hock” to bond markets, and one Burnham-supporting backbencher said the bond market would have to “fall into line” in a Burnham government.
That’s not the way it works, however. The UK does not set the price of its borrowing unilaterally – it must earn it from investors who are free to allocate capital elsewhere, and who become less forgiving when they sense fiscal complacency.
The UK was described as Italian politics but with sh*t weather and worse food by Perkins. The gilt market, while not in open revolt, is beginning to price something uncomfortably close.