Allies of Sir Keir Starmer have warned Labour MPs that any attempt to remove the Prime Minister could trigger economic instability similar to the market turmoil seen during Liz Truss’s premiership.
Supporters of the PM said forcing him from office during the ongoing Lord Mandelson controversy risked pushing up interest rates and unsettling financial markets.
One ally said: “Volatile bond markets make leadership challenges extremely costly for the country; it would be totally irresponsible.
“The Labour leadership electorate have shown themselves perfectly capable of unpredictable and disastrous outcomes. Remember they elected Jeremy Corbyn.”
Sterling recorded its sharpest single‑day fall against the US dollar since September on Thursday amid concerns over political stability, before recovering to $1.36 on Friday.
The spread between 10‑year and two‑year gilt yields rose to its highest level in eight years on Friday, reflecting investor fears about potential increases in Government borrowing.
The shift comes alongside forecasts of around £300billion in annual borrowing.
UK borrowing costs remain among the highest in the G7, although recent gilt rallies had narrowed the gap with other major economies.
Labour MPs warned leadership contest could trigger market turmoil and higher borrowing costs
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Business leaders who backed Labour during the general election have also raised concerns about the party’s economic direction if Sir Keir were replaced.
Andy Higginson, chairman of JD Sports, said: “We voted for their pro‑business message, and the risk is this would be a shift to the left through the back door.”
Some business figures said political uncertainty could undermine improving sentiment following November’s Budget.
Several senior Labour figures are being discussed internally as potential successors if a leadership contest were triggered.
An ally of Ms Rayner said she had previously warned Sir Keir against appointing Lord Mandelson as ambassador to Washington
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GETTYHealth Secretary Wes Streeting, former deputy prime minister Angela Rayner and Energy Secretary Ed Miliband have all been linked to possible bids.
An ally of Ms Rayner said she had previously warned Sir Keir against appointing Lord Mandelson as ambassador to Washington due to his links to Jeffrey Epstein.
Some Labour MPs believe the Prime Minister has been politically damaged by Lord Mandelson’s appointment and subsequent developments linked to the Epstein files.
A leadership contest would require around 81 Labour MPs to nominate an alternative candidate.
Angela Rayner has distanced herself from Lord Mandelson’s appointment
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PARLIAMENTInvestment professionals have warned that markets could react negatively to any shift in economic policy.
Mike Riddell, bond fund manager at Fidelity International, said: “If the UK saw new leadership that decides to go down the fiscal expansion path, then the gilt market would likely throw a wobbly, and sterling probably would too.”
Holger Schmieding, chief economist at Berenberg Bank, said a successor “less committed to fiscal responsibility” could limit the Bank of England’s ability to cut interest rates while increasing the returns investors demand to hold UK Government debt.
Stephen Jones, chief investment officer at Aegon Asset Management, said: “A new PM isn’t going to work, we have tried this, with five in the past 10 years.”
