Pound wobbles and bonds suffer as Starmer battles on

UK markets struggled on Tuesday due to domestic political instability, rising US inflation, and Middle East tensions. The FTSE 100 closed 4.11 points lower at 10,265.32, while the FTSE 250 and AIM All-Share fell 1.5% and 1.4%, respectively. Prime Minister Keir Starmer defied calls to resign despite over 80 Labour MPs urging him to step down or set a resignation timeline. The pound weakened to 1.3505 against the dollar, and UK 10-year gilt yields climbed to 5.10%, reflecting investor uncertainty. Banks like NatWest, Lloyds, and Barclays dropped 3.2% to 4.4% amid speculation of a potential 5% windfall tax if Starmer’s leadership wavers. Housebuilders also declined due to higher borrowing costs, with Barratt Redrow and Taylor Wimpey down 4.1% and 2.4%, respectively. US inflation data showed a 3.8% annual rise in April, exceeding expectations, with core inflation at 2.8% due to higher shelter costs. Analysts warned the Federal Reserve must remain cautious, as energy price spikes could push inflation toward 3% by year-end. Meanwhile, oil prices surged to $108.07 per barrel amid escalating tensions between Iran and the US, with Tehran’s negotiator warning of potential ceasefire failure. European markets also declined, with the CAC 40 and DAX down 1.0% and 1.6%, respectively. US Treasury yields rose, with the 10-year at 4.46% and the 30-year at 5.02%, signaling broader market unease. The combination of political uncertainty, inflation pressures, and geopolitical risks contributed to a subdued trading session across global markets.