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UK borrowing costs surge to highest level since 2008
The UK government's borrowing expenses climbed to an 18-year peak on Friday as financial markets reacted to fresh uncertainty in the Labour Party leadership race. The 10-year bond yield briefly exceeded 5.17%, marking its highest point since the 2008 financial crisis.
Pound weakens as Andy Burnham enters leadership contest
The pound sterling dropped 0.3% against the US dollar to $1.336, extending losses after Andy Burnham announced his bid to enter parliament through a by-election. Analysts linked the currency's decline to concerns that a Burnham-led government would increase public borrowing.
Kathleen Brooks, research director at XTB, noted the pound had fallen 1.5% this week, calling Burnham the "least market-friendly" candidate. She contrasted his impact with the muted reaction to Wes Streeting's earlier resignation.
Long-term borrowing costs reach 28-year high
Thirty-year UK government bond yields also hit a 28-year high, peaking at 5.84% by mid-afternoon. While global borrowing costs rose amid fears of inflation driven by surging oil prices-Brent crude briefly topped $109 a barrel-UK markets showed sharper volatility.
Investors wary of Burnham's economic stance
Burnham's past comments about reducing reliance on bond markets have unsettled investors. In a 2025 interview with the New Statesman, he argued the government must "get beyond this thing of being in hock to the bond markets."
"His remarks have helped push UK borrowing costs higher and seen the pound slump,"
Russ Mould, AJ Bell investment director
Mould added that a Burnham-led process would likely prolong political uncertainty, further straining markets.
Political instability weighs on markets
Brooks identified two key drivers behind the pound's decline: fears of a leftward shift in government and ongoing leadership chaos. She warned that foreign investors were already reducing exposure to UK bonds, raising the risk of a broader sell-off.
Jefferies economist Mohit Kumar told Reuters that markets feared Burnham's policies could widen the UK's budget deficit.
FTSE 100 falls as Burnham launches bid
UK stocks mirrored losses across Europe, with the FTSE 100 dropping 1.7%. Burnham, the mayor of Greater Manchester, confirmed his candidacy after MP Josh Simons vacated his seat in Makerfield to facilitate the bid.
"We will change Labour for the better and make it a party you can believe in again,"
Andy Burnham
However, his path to leadership remains uncertain. He must first secure local party selection and then win the by-election, where Reform UK could pose a strong challenge.
