British Prime Minister Keir Starmer gives an update on the situation in the Middle East at Downing Street Briefing Room, in London, Britain, March 05, 2026.
Jaimi Joy | Via Reuters
Early results from local council elections pointed to big losses for the U.K.’s ruling Labour Party on Friday, raising questions about Keir Starmer’s future as prime minister.
Vote counts pointed to hundreds of Labour councilors losing their seats and the leadership of many local councils changing hands.
The predicted result will not affect the composition of parliament in Westminster or change who is in government, but reflects souring sentiment on Starmer’s leadership among the electorate.
Labour and its main opposition party, the Conservatives, are widely expected to suffer heavy losses, while right-wing Reform UK and the left-wing Green party are anticipated to make major gains.
Backbench Labour MPs — parliamentarians without a position in government — are reportedly planning to blame looming losses on the prime minister and demand his resignation.
Starmer and his finance minister, Rachel Reeves, have been battling discontent over fiscal policy within their own ranks, while welfare reforms and the appointment of Peter Mandelson — an associate of the late sex offender Jeffrey Epstein — as U.S. ambassador, have further damaged inter-party relations .
Health Minister Wes Streeting, former Deputy Prime Minister Angela Rayner and Greater Manchester Mayor Andy Burnham are reported to be among the top contenders to replace Starmer. Rayner and Burnham — who is currently ineligible to stand as prime minister because he lacks a seat in parliament — are broadly considered more left-leaning than Starmer.
But markets have been supportive of Starmer and Reeves retaining their positions relative to potential alternatives, with U.K. bonds selling off in previous bouts of uncertainty over their political futures.
Last July, yields on U.K. government bonds — known as gilts — surged after Reeves was seen crying in parliament, amid reports that her role in Starmer’s cabinet was in jeopardy. It came after the government U-turned on her proposed welfare cuts following a rebellion from Labour politicians.
Yields on benchmark 10-year U.K. government bonds, known as gilts, were 1 basis point higher in early trading in London, as investors awaited further election results. Earlier this week, those yields surged to their highest levels since 2008 amid reports of a planned coup against Starmer from within his own party following the election.
U.K. 10-year gilt
Bond yields and prices move in opposite directions.
Gilt yields were mixed across the curve, with the yield on the 2-year gilt edging marginally higher while those on 20- and 30-year gilts ticked slightly lower. Longer-term gilt yields also surged to multi-decade highs earlier this week, with 30-year borrowing costs touching their highest level since 1998.
U.K. 30-year gilt
The U.K. already has the highest government borrowing costs in the G7, with its 10-, 20- and 30-year debt commanding yields above the critical 5% threshold. Yields effectively represent the interest paid by the government to investors who hold its debt.
Nigel Green, CEO of financial consultancy deVere Group, told CNBC early Friday morning that gilt markets were likely to become “one of the biggest political risks facing Keir Starmer and Rachel Reeves” after the local elections.
“Labour has already lost around 58% of the council seats it was defending in the overnight results. If losses continue anywhere near that pace, the party could be staring at close to 1,500 seat losses overall,” he said in an email.
“Markets pay extremely close attention to political authority, particularly when governments are already facing difficult fiscal conditions.”
Green noted that rising gilt yields are “a serious warning sign”, with investors demanding a bigger premium to hold U.K. debt.
“Markets are questioning whether Labour can maintain fiscal discipline, support growth and reassure investors simultaneously,” he said.
“Rachel Reeves is completely tied politically to Starmer on the economy. If gilt yields remain under pressure while Labour absorbs heavy electoral losses, investors may begin concluding the government is becoming politically weakened as well as fiscally constrained.”
Green added that while sterling has so far avoided a major sell-off, currencies and bond markets often move together once confidence begins deteriorating.
“If investors lose faith in the government’s ability to control borrowing or maintain economic credibility, pressure on the pound could intensify quickly,” he told CNBC. “For Downing Street, this becomes dangerous when political weakness and market weakness begin feeding each other.”
Jonathon Marchant, a fund manager at U.K.-based Mattioli Woods, told CNBC that the early indication was that “it is likely to be tough day for Kier Starmer.”
“Given the ratcheting up of tensions in the Middle East overnight and the associated impact on oil and inflation, disentangling the market’s perception of local elections is challenging,” he said. “Gilt yields fell slightly on open, with the market appearing to have priced in a marginally worse outcome for Labour in the run up to the local elections.”
Marchant noted that Starmer has “remained resolute in recent weeks and is likely to want to fight on.”
“Indeed, we could see the pace of attempted policy change accelerate,” he told CNBC. “However, for markets the question is: ‘in which direction?’ Tacking further to the left is likely to appease back benchers and block internal opposition and while this would be more favorable than a leadership change, it is not something markets are likely to welcome.”
