Voters across England, Wales and Scotland went to the polls on Thursday in local and devolved elections expected to deliver the Labour Party its worst results in decades, with UK government bond markets trading on edge as traders track whether heavy losses could destabilise Prime Minister Keir Starmer’s leadership and push Britain into another fiscal credibility crisis.
The yield on the benchmark 10-year gilt stood at 5.082 percent, its highest level since 2008, while the 30-year yield settled around 5.76 percent, its highest since 1998. Bond yields and prices move in opposite directions, meaning the market is demanding higher returns to hold British government debt at a moment of intensifying political uncertainty.
More than 4,800 local council seats are contested across England, while voters in Wales and Scotland elect devolved parliaments. Projections point to Labour losing as many as 2,000 council seats, with the hard-right Reform UK and the left-wing Greens expected to be the primary beneficiaries.
The political backdrop has alarmed investors already sensitive to UK fiscal risk. Reports that Labour backbench Members of Parliament are organising to demand Starmer resign or set a date for his departure triggered a spike in gilt yields earlier this week, with some backbenchers reportedly planning to blame the expected losses directly on Starmer’s leadership.
Gilt market pressure has also been intensified by the Iran conflict, which has pushed energy and oil prices sharply higher, revived inflation concerns and led traders to scale back expectations for Bank of England interest rate cuts.
Nigel Green, Chief Executive of the deVere Group, said the gilt market “will not shrug off a heavy Labour loss.” “She’s meant to be the economic credibility anchor,” he said of Chancellor Rachel Reeves. “If her authority weakens or political pressure forces a softer stance on spending, yields move higher.”
Starmer, who swept to power in July 2024 ending 14 years of Conservative rule, is now among the most unpopular prime ministers in modern polling history, with a YouGov survey in April finding 70 percent of respondents believe he is performing badly. He has faced criticism over welfare reform, the winter fuel allowance cut, the cost-of-living crisis and controversy surrounding the appointment of Peter Mandelson as UK ambassador to the United States following disclosures about Mandelson’s links to the late sex offender Jeffrey Epstein.
Health Secretary Wes Streeting, former Deputy Prime Minister Angela Rayner and Greater Manchester Mayor Andy Burnham are the most widely discussed potential successors, with Rayner and Burnham broadly considered more left-leaning than Starmer. Investors have noted that a shift toward more expansionary spending under a successor could push yields higher still.
The UK enters the results with public debt close to 100 percent of Gross Domestic Product (GDP) and gilt issuance expected to exceed £250 billion this fiscal year. Polls closed at 10pm local time with results expected through Friday morning.
