UK bonds, or gilts, are trading stable – for now – but the market is one ugly set of results for Labour in Thursday’s local elections across England, Wales and Scotland away from another potentially brutal sell-off, warns the CEO of a global financial advisory giant.
Nigel Green of deVere Group’s warning comes as Britain’s bond market remains dangerously close to levels associated with the Liz Truss mini-Budget meltdown, with investors increasingly alarmed by Labour infighting, weak growth, soaring borrowing requirements and fears that Keir Starmer’s government could buckle under mounting political pressure.
The benchmark 10-year gilt yield pushed above 5% this week before easing modestly on Thursday, while 30-year borrowing costs remain near the highest levels seen since the pension-fund crisis triggered by the Truss government in 2022. Sterling has also come under renewed pressure as traders assess Britain’s fiscal trajectory against deepening political uncertainty
Reports that Labour MPs are preparing moves against Starmer after what could be devastating local election losses have intensified concerns across financial markets that Britain is heading into another period of instability at precisely the wrong moment.
“The gilt markets have been smelling political weakness lately,” says Nigel Green.
“Investors are looking at Labour and seeing a government apparently beginning to lose control of the narrative, lose control internally, and, therefore, potentially lose control of fiscal discipline.
“This is exactly the type of atmosphere that causes bond traders to turn aggressive.”
Labour is expected to suffer major losses across councils in England, while Reform UK and The Greens continue gaining momentum and dissatisfaction with the government grows over taxes, living costs and economic stagnation.
Nigel Green says markets are now questioning whether Chancellor Rachel Reeves will be able to maintain credibility if pressure inside Labour intensifies after the results.
“The danger for Britain isn’t simply political embarrassment for Starmer. The danger is what comes next.
“If Labour MPs panic after heavy losses, the pressure for higher spending, softer fiscal rules and more intervention ramps up immediately.
“Bond investors are already gaming out those scenarios.”
The UK enters the elections with public debt close to 100% of GDP, weak productivity, anaemic growth and borrowing costs that have climbed sharply over the past year.
Britain is also expected to issue more than £250 billion in gilts this fiscal year alone, forcing markets to absorb a huge wave of debt supply at a time confidence is already fragile.
The deVere Group CEO says the comparison with the Truss disaster is unavoidable.
“The mini-Budget crisis fundamentally changed how investors view UK risk.
“Markets learned Britain’s not immune from a full-blown confidence shock if fiscal credibility disappears.
“People in Westminster still underestimate how brutally fast bond markets move once trust starts evaporating.”
The Truss government’s unfunded tax-cutting plans detonated UK assets in 2022, sending 30-year gilt yields above 5%, hammering pension funds and forcing the Bank of England into emergency intervention to stop a wider financial crisis.
The chief executive says investors remain highly sensitive to any suggestion Britain could drift back toward reckless policymaking.
“The long end of the gilt curve remains the pressure point because that’s where investors express fear over long-term borrowing and political competence.
“If confidence weakens again, those yields can move violently.”
“Britain can’t afford another credibility event.”
Sterling is also tightly tied to the political backdrop, with currency traders increasingly focused on whether Labour can maintain authority over spending and borrowing as economic conditions worsen.
“A weaker pound feeds inflation pressure directly back into the system,” explains Nigel Green.
“That pushes gilt yields even higher because investors demand greater compensation for risk.
“It becomes a vicious cycle very quickly.”
He warns that markets no longer automatically grant Britain the benefit of the doubt.
“For years the UK traded on an assumption of stability and competence but that premium has eroded.
“International investors now look at Britain far more critically because the Truss episode exposed how quickly things can unravel.
“Gilts are stable today as people go to the polls, but nobody should confuse stability with confidence.”
Nigel Green says the next 48 hours could prove critical for market sentiment if election losses trigger open fractures inside Labour or further questions over Starmer’s leadership.
“The bond market wants discipline, authority and credibility. Right now investors are seeing cracks.”
He concludes: “Should Labour come out from these elections wounded and divided, traders will immediately start pricing greater fiscal risk into UK assets.
“Britain is sitting in an extremely exposed position financially. One serious political shock could send gilt markets sharply higher again.”