British government bonds could face severe turmoil if the Peter Mandelson scandal forces Prime Minister Keir Starmer from office, according to a prominent financial advisory firm.
Nigel Green, chief executive of deVere Group, warned that political instability stemming from the crisis could trigger volatility in UK gilt markets, with Chancellor Rachel Reeves particularly vulnerable to any leadership change.
The Metropolitan Police launched a criminal investigation into Mandelson on Tuesday following allegations he passed market-sensitive government information to convicted sex offender Jeffrey Epstein while serving as business secretary in 2009.
Starmer acknowledged on Wednesday that Mandelson “lied repeatedly” during vetting procedures before his appointment as ambassador to the United States, intensifying pressure on the Prime Minister over his judgement.
Green said the immediate concern for investors is not merely the scandal itself, but what it reveals about leadership stability and governmental control.
The deVere chief executive argued that Reeves has built her credibility with bond markets primarily through continuity and fiscal discipline, particularly following turbulence during the previous administration.
He noted that investors view Starmer and Reeves as an integrated framework, meaning any fracture to that arrangement could destabilise market confidence.
Green suggested that replacing Reeves would prove difficult for any successor prime minister without appearing constrained by previous leadership decisions.
UK government bond yields rose on Thursday, with ten-year gilt yields reaching their highest level since November 20, reflecting investor concerns about political stability.
Green cautioned that bond markets would not await formal leadership decisions before reacting to signs of political fragmentation.
He said gilt investors remain sensitive to questions over fiscal credibility following previous policy shocks, and could respond rapidly to uncertainty over Treasury control.
The warning comes as political commentators increasingly discuss the possibility of a leadership challenge, though Green emphasised the risk remains conditional on visible political breakdown.
