Markets Reward Starmer's Defiance After Local Election Losses

The day's market story did the political work: UK government borrowing costs fell and sterling rose after Keir Starmer ruled out resigning despite Labour losing hundreds of council seats across England. Investors decided the immediate pressure on his leadership had eased and Labour's losses had come in below the more apocalyptic forecasts. The yield on benchmark 10-year gilts, which had jumped earlier in the week amid leadership-challenge speculation, fell 5 basis points to 4.89%, outperforming equivalent US Treasuries. Thirty-year yields, which hit a 28-year high of 5.77% earlier in the week, dropped 7 basis points to 5.56%, their lowest in more than two weeks. The pound gained three-quarters of a cent against the dollar by mid-afternoon and edged up against the euro.

Matthew Ryan of Ebury said markets had been pricing in higher government spending under a more leftwing successor such as Angela Rayner, Ed Miliband or Andy Burnham, funded by tax hikes and additional borrowing. Saxo UK's Neil Wilson said "bond vigilantes are lurking," attuned to the risk that Chancellor Rachel Reeves could lose her job if Starmer departed: "Political risks associated with a Starmer/Reeves defenestration are bound up with already rising fiscal and inflationary risks for the UK economy." Capital Economics added that any successor would face the same constraints — "we suspect the result would probably be higher interest rates and higher gilt yields than otherwise."

The cybersecurity track delivered the day's other newly disclosed pressure on UK institutions. The National Cyber Security Centre published guidance, co-sealed with international partners, warning that China-nexus actors are running botnets built out of compromised home and SME routers and edge devices to mount attacks on UK organisations, in a shift to "dynamic, low-cost, denial-of-attribution" infrastructure rather than traditional fixed command-and-control. The advisory describes the operational pattern that has driven recent intrusions across UK telecoms and managed-service providers.

Westminster also saw the ICC story re-enter the news cycle. Prosecutor Karim Khan said he would cooperate with a UK parliamentary inquiry into an April 2024 phone call in which he says then-Foreign Secretary David Cameron threatened to defund the International Criminal Court if Khan pursued arrest warrants for Israeli officials over Gaza. Khan described the conversation as a direct threat to the court's independence; the inquiry's terms have not been finalised but the cooperation undertaking adds documentary weight to the political fight over UK posture toward the ICC.

Around the periphery: UK exposure to the Hormuz crisis remains primarily through fuel-price politics and shipping-insurance markets, with Brent oscillating around $100 — up roughly 50% since mid-February — as Iran activated its Persian Gulf Strait Authority charging tolls on Hormuz transits. Britain has not joined Italian or French resistance to providing naval escorts but has not signed up either, leaving Westminster's posture on Project Freedom one of the open questions for the coming week.