U.K. government bond rates soared on Tuesday as Prime Minister Keir Starmer battled to remain in power after the ruling Labour Party suffered big losses in last week's local elections.
The yield on 30-year bonds reached 5.797%, the highest level since 1998.
The 10-year rate hit 5.116%, near its 2008 peak.
Britain saw government borrowing costs rise with "Starmer's leadership under increasing pressure," noted Derren Nathan, head of equity research at Hargreaves Lansdown.
"The potential for a fiscally looser successor may be weighing" – in addition to high oil prices pushing up inflation.
The British pound was down about 0.8% against the dollar and also fell versus the euro.
London's benchmark FTSE 100 stocks index lost around 0.5%, mirroring losses elsewhere in Europe.
Starmer vowed on Monday to prove his doubters wrong after more than 50 of his own MPs demanded he quit.
The 63-year-old became prime minister in July 2024 after a landslide election win for Labour, since when he has swerved from one policy misstep to another.
More recently, Starmer became mired in a scandal over the appointment and sacking of Peter Mandelson as U.K. ambassador to Washington, after revelations about the envoy's ties to sex offender Jeffrey Epstein.
While the U.K. economy has struggled to grow during Labour's time in office, Starmer has nonetheless won praise for resisting U.S. President Donald Trump over Iran.
But last week, voters in local and regional elections issued a damning indictment of his 22 months in power.
The ballots saw huge gains for the hard-right Reform UK party and the left-wing populist Greens at Labour's expense.
"Markets tend to dislike a lack of certainty over who runs a government," Saxo U.K. investor strategist Neil Wilson said on Tuesday.
"The (U.K.) fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending – and that this makes inflation stickier."
