UK borrowing costs rise as pressure mounts on PM Keir Starmer

U.K. bond yields rose on Thursday as Prime Minister Keir Starmer came under renewed pressure over his handling of a scandal around former U.K. ambassador to the U.S. Peter Mandelson’s links to the disgraced financier Jeffrey Epstein.

The yield, or interest rate, on the U.K.’s benchmark 10-year gilt was up 3 basis points to 4.575% at around 9.44 a.m. London time on Thursday amid reports of mounting anger among Labour Party lawmakers over Starmer’s appointment of Mandelson as ambassador in Feb. 2025.

A trove of documents and emails released by the U.S. Department of Justice in recent weeks and months cast new light on Mandelson’s relationship with sex offender Epstein, and how their friendship continued despite Epstein’s conviction in 2008 for soliciting prostitution from a minor.

Starmer told parliament on Wednesday that he was misled about the “sheer depth and extent” of Mandelson’s relationship with Epstein, despite the links being highlighted during a vetting process before his appointment.

“He lied repeatedly to my team when asked about his relationship with Epstein before and during his tenure as ambassador. I regret appointing him,” Starmer said, adding: “If I knew then what I know now, he would never have been anywhere near government.”

Mandelson has sought to distance himself from Epstein, who killed himself in 2019 while in custody on federal child sex trafficking charges. He said earlier this year that he regretted “ever having known Epstein.”

Mandelson resigned his Labour Party membership earlier this week. Starmer removed him as ambassador in September.

It’s the latest issue Starmer is facing after policy U-turns, ongoing economic anemia and a slide in opinion polls already put his premiership under pressure.

Political analysis firm Eurasia Group puts the probability of a rival leadership bid and Starmer’s removal from office this year at 80%, up from 65% previously.

“Keir Starmer is fighting for his political life amid the deepest crisis to engulf his premiership,” Mujtaba Rahman, managing director of Europe at Eurasia Group, said in a note Thursday, describing it as a “catastrophic decision” to appoint Mandelson as U.K. ambassador.

Rahman said that while disgruntled Labour members of parliament had planned to delay any move against Starmer until after a local special election on Feb. 26 and the wider and more important regional elections on May 7, “it is no longer certain he can hold on that long.”

“Although Starmer might survive in the short term, the Mandelson affair has inflicted irreparable damage to him. Some Labour MPs describe it as ‘the tipping point,’ others as ‘the final straw’,” Rahman noted.

A total of 81 Labour members of parliament are needed to trigger a party leadership election.

“Although the PM insists he will fight any challengers, the current crisis increases the chances he would fall on his sword” if Starmer’s opponents mustered 81 lawmakers, Rahman said.