The reported plot to oust Prime Minister Keir Starmer, combined with the risk of a brutal Labour showing in Thursday’s local elections, has put gilt markets on high alert—still deeply scarred by the Liz Truss mini-Budget crisis and acutely sensitive to any hint of political or fiscal instability, warns the CEO of a global financial advisory giant.
The warning from deVere Group’s Nigel Green comes as Labour MPs are reportedly organising an open letter to pressure Starmer into setting out a timetable for his departure, with projections pointing to losses of as many as 1,900 council seats and intensifying competition from Reform UK and the Green Party.
“Markets have long memories, and in the UK gilt market, that memory is dominated by Liz Truss,” he comments.
“The 2022 mini-Budget crisis is still the benchmark for what happens when fiscal credibility is questioned. Yields surged, long-dated gilts were hit hardest, and the Bank of England was forced into emergency action to stabilise the system.
“Investors are watching current political developments through that exact same lens.
“Any sign of instability around Prime Minister Keir Starmer or pressure on Chancellor Rachel Reeves immediately feeds into concerns about whether fiscal discipline could weaken.”
The UK enters this political flashpoint with little margin for error. Public debt remains close to 100% of GDP, borrowing continues at elevated levels, and gilt issuance is expected to exceed £250 billion this fiscal year.
Growth remains fragile, leaving the fiscal outlook highly sensitive to even small shifts in policy or confidence.
“If Labour suffers a heavy defeat and internal divisions intensify, gilt markets will start assigning a higher probability to looser fiscal policy, whether through increased spending, diluted rules, or political concessions.”
Attention is likely to centre on the long end of the curve, where maturities between 10 and 30 years are most exposed to concerns about supply and long-term fiscal sustainability.
“The long end is where the damage showed up during the Liz Truss episode, and it is where it would show up again,” says Nigel Green. “Investors demand a higher term premium when confidence slips, and that drives yields sharply higher in those maturities.”
During the 2022 turmoil, 30-year gilt yields briefly surged above 5%, triggering severe stress in liability-driven investment strategies used by pension funds. The rapid repricing forced the Bank of England to step in with emergency gilt purchases to prevent a broader financial stability crisis.
“That episode reset how investors view UK risk,” the deVere CEO explains.
“A sudden loss of confidence can cascade through the system far faster than policymakers expect. Bond markets move on expectation.”
Sterling remains tightly linked to this dynamic. Any erosion of confidence tied to leadership uncertainty or fiscal loosening would likely weaken the currency, feeding into imported inflation and reinforcing pressure on bond yields.
“Currency and bonds move together in these situations,” Nigel Green notes.
“A weaker pound lifts inflation expectations, and that pushes gilt yields higher. It becomes a feedback loop that is difficult to contain once it starts.”
Reports that Labour backbenchers are preparing an open letter to Prime Minister Keir Starmer, drawing comparisons with the internal campaign that led to Sir Tony Blair’s departure in 2006, add another layer of uncertainty at a critical moment.
“Investors are focused on control,” says Nigel Green. “If Thursday’s results expose fractures within the government, the concern is not just political leadership, it’s whether Rachel Reeves can, moving forward, maintain a credible grip on spending and borrowing.”
The deVere CEO concludes: “The combination of a potentially massive electoral setback, an organised push against Starmer, and questions over how firmly Reeves can hold the fiscal line creates a clear risk signal for UK bond markets.
“If those pressures build after the vote, gilt investors will move quickly, pricing in higher borrowing, demanding greater compensation for risk, and pushing yields higher in a way the UK can ill afford.”