UK borrowing costs climb and pound falls as Labour leadership drama deepens
UK long-term borrowing costs rose and the pound weakened on Friday as a Labour Party leadership challenge unsettled investors. Analysts said the moves reflected fears that a Burnham-led government would raise borrowing further.
UK long-dated gilt yields climbed sharply and sterling slid on Friday as a leadership challenge inside the Labour Party deepened, with Manchester mayor Andy Burnham positioning to take over the prime ministership. The 30-year gilt yield rose about 14 basis points during the session, and the pound fell roughly 0.9 percent against the dollar to trade below 1.21.
Analysts said markets were pricing the prospect of a more spending-friendly fiscal stance under a Burnham-led government, which they expect would raise borrowing further. A Citi note flagged a cumulative steepening of close to 50 basis points across the gilt curve in three trading days.
The Treasury already faces an elevated gross financing need this fiscal year, and investors warned that a prolonged leadership contest could push risk premia higher still. A weaker pound complicates the Bank of England's path on rates by feeding through to import-driven inflation, adding to the policy uncertainty.
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