The yield on UK government bonds edged higher on Friday as Andy Burnham’s by-election victory in Makerfield cleared the path for a potential challenge to Sir Keir Starmer’s leadership, compounding existing unease over the nation’s borrowing figures. The 10-year gilt yield rose to 4.84% by the close of London equity markets, compared with 4.76% at the same time on Thursday, reflecting a market that is growing increasingly sensitive to political uncertainty.
Market reaction to political shift
The FTSE 100 ended the session 36.43 points lower, or 0.4%, at 10,363.27, while the FTSE 250 shed 129.99 points, or 0.6%, to 23,200.73. The AIM All-Share fell 4.21 points, or 0.5%, to 795.83. Over the week the blue-chip index lost 1.0%, the mid-cap index declined 0.5%, and the AIM All-Share managed a 1.0% gain. European peers also retreated: the CAC 40 in Paris closed down 0.6% and the DAX 40 in Frankfurt fell 0.2%.
Sir Keir congratulated Mr Burnham but reiterated that he would fight any leadership contest. “If there is a contest then yes I will run, I will stand. I’ve said repeatedly, I’m not going to walk away from that,” he told reporters in London. The response did little to calm the gilt market, where the yield rise was driven partly by Mr Burnham’s win and partly by the wider economic backdrop.
Kathleen Brooks, research director at XTB, said the rise in gilt yields tells “us three things, one, it is not all because of Andy Burnham, two, you cannot borrow excessive amounts of money when growth is flat-lining, and three, Burnham faces extremely constrained circumstances if he does topple Starmer”. She added that Mr Burnham may have won a resounding election result but has “hard work to persuade financial markets that he is the right man for the job to grow the UK economy and get debt back under control”.
Mr Burnham, who served as Labour MP for Leigh from 2001 to 2017 and as Mayor of Greater Manchester from 2017 until his return to Westminster, is associated with the party’s “soft left”. The Makerfield constituency in Greater Manchester recorded a 45.2% share for Labour and a notable 31.8% for Reform UK. Should he become prime minister, JPMorgan analyst Allan Monks sees a “high risk” Mr Burnham would consider a change to the fiscal rules, despite appearing to rule this out in recent weeks. “He would need to tread carefully given market pressure, but a change motivated to allow more growth-enhancing investment spending could work if communicated in the right way. This would receive some support from a range of economists and think tanks,” Mr Monks said.
Borrowing overshoot deepens fiscal concerns
The rise in gilt yields was not solely a political story. The Office for National Statistics reported on Friday that public sector net borrowing, excluding public sector banks, totalled £23.3 billion in May – a 30% jump from £17.9 billion a year earlier and £5.6 billion above the Office for Budget Responsibility’s forecast of £17.7 billion. Debt interest payable in May reached £11.7 billion, up 54.4% from the same month last year and the highest May figure on record. The current budget deficit on day-to-day spending stood at £18.5 billion.
Public sector net debt rose to 95.1% of gross domestic product at the end of May, a level not seen since the early 1960s. The gilt selloff comes after Goldman Sachs noted that a “selloff in UK gilts triggered by the Middle East energy shock sent yields to an 18-year high” in late March, with the Bank of England signalling a potential policy shift to combat inflation. Higher gilt yields increase the government’s cost of borrowing, making it more expensive to service the national debt and constraining fiscal headroom – precisely the constraints Mr Brooks alluded to for any future prime minister.
In better economic news, the ONS reported that UK retail sales volumes rose 1.2% in May from April, beating expectations and rebounding from a revised 1.0% fall in April. The统计局 said department stores benefited from good weather during the month, while promotions boosted non-store retailers. Non-food stores saw a 1.2% increase in sales volumes, with department stores up 2.7% over the three months to May – their strongest quarterly performance since September 2024. Online sales values rose 3.3% in May and were 12.2% higher year-on-year, pushing e‑commerce’s share of total retail spending to 28.8%. Supermarkets were the only sector to see a significant decline, with volumes falling 0.4% month‑on‑month. However, McKinsey & Company cautioned that the data may represent a “heat-driven spike rather than a turning point” when viewed over a three-month period.
Currencies and commodities
The pound traded at $1.3227 on Friday afternoon, down from $1.3246 on Thursday. Sterling ebbed to €1.1532 from €1.1541. The euro slipped against the greenback to $1.1469 from $1.1477, while the dollar strengthened to ¥161.26 from ¥160.99. Trading Economics forecasts EUR/USD to trade at 1.16 by the end of the current quarter and 1.18 in 12 months, while USD/JPY is expected at 160.02 by quarter‑end and 155.80 in a year.
Oil prices crept higher after the postponement of planned US‑Iran deal talks in Switzerland and as fighting flared between Israel and Hezbollah in Lebanon. The Iranian foreign ministry downplayed the delay, saying there was “no urgency” to meet US negotiators because a memorandum of understanding to end the Middle East war had already been signed electronically. Brent crude for August delivery traded at $80.21 a barrel, up from $77.04 on Thursday. Reports indicated Brent was heading for a weekly decline of roughly 8% after a ceasefire agreement between Israel and Hezbollah was set to begin. Goldman Sachs had reduced its end‑2026 Brent forecast to $80, anticipating normalisation of Persian Gulf oil exports by July, while J.P. Morgan Global Research forecasts Brent to average around $60 per barrel in 2026, citing soft supply‑demand fundamentals.
Gold traded at $4,152.32 an ounce, down from $4,230.61 on Thursday. Forecasts vary widely: J.P. Morgan expects prices to average $6,000/oz by the final quarter of 2026, rising toward $6,300/oz by end‑2027, whereas CoinCodex predicts a drop to $2,954.25 by the end of the year.
Company news
The stronger oil price supported BP, which rose 2.8%, and Shell, which gained 1.1%. The lower gold price hit Fresnillo, down 4.7%, and Endeavour Mining, down 3.3%.
Informa climbed 1.3% after Citigroup upgraded the stock to “buy” from “neutral”, following the government’s decision on Thursday to drop its advice against travelling to the United Arab Emirates and Saudi Arabia. Admiral fell 3.2% after RBC Capital Markets downgraded the Cardiff‑based home and motor insurer to “sector perform” from “outperform”. Analyst Ben Cohen said the bank is “taking a more conservative view of current volumes and margins, particularly in H1, which has a small knock‑on impact to out‑year forecasts”. Admiral’s interim results are due on August 6.
On the FTSE 250, PPHE Hotel Group plunged 16% after suitor Fattal Hotels confirmed it does not plan to make an offer for the London listing, following opposition from a key shareholder. Euro Plaza Holdings, which owns 33% of PPHE, “is opposed to the Fattal proposal”, the firm said. However, PPHE, the operator of Park Plaza and art’otel hotels, said it has “received an indicative proposal from another interested party”. “This interest is at a very preliminary stage and is currently being assessed,” it added.
The biggest risers on the FTSE 100 were BP, up 13.7p at 503.8p; National Grid, up 21.5p at 1,212.0p; London Stock Exchange Group, up 122.0p at 8,460.0p; Informa, up 11.4p at 875.0p; and Experian, up 33.0p at 2,542.0p. The biggest fallers were Fresnillo, down 145.0p at 2,972.00p; Endeavour Mining, down 138.0p at 4,042.0p; Admiral, down 108.0p at 3,254.0p; Antofagasta, down 133.0p at 4,036.0p; and Weir Group, down 76.0p at 2,430.0p.
US financial markets were closed on Friday for the Juneteenth holiday, which reduced trading volumes. Next week’s global economic calendar includes PMI reports across the world and inflation data from Australia and Canada. The local corporate calendar features full‑year results from housebuilder Berkeley Group and defence manufacturer Babcock International.
