U.K. government bond yields climbed on Thursday as Prime Minister Keir Starmer faced renewed scrutiny over his handling of a controversy involving former ambassador Peter Mandelson and the disgraced financier Jeffrey Epstein.
The yield on the U.K.’s benchmark 10-year gilt rose 3 basis points to 4.575% around 9:44 a.m. London time, reflecting growing unease among Labour Party lawmakers about Mandelson’s February 2025 appointment as ambassador to the U.S.
Recent documents and emails released by the U.S. Department of Justice have cast new light on Mandelson’s connection to Epstein, showing that their relationship persisted despite Epstein’s 2008 conviction for soliciting prostitution from a minor.
Starmer addressed Parliament on Wednesday, admitting he was misled about the extent of Mandelson’s ties to Epstein, despite the relationship having been flagged during the ambassadorial vetting process.
“He lied repeatedly to my team about his relationship with Epstein before and during his tenure,” Starmer said. “I regret appointing him. If I had known then what I know now, he would never have held a government post.”
Mandelson, who resigned his Labour Party membership earlier this week, has publicly distanced himself from Epstein, who died by suicide in 2019 while facing federal child sex trafficking charges. Starmer removed Mandelson from his ambassadorial role in September.
The scandal compounds existing challenges for Starmer, who is already dealing with unpopular policy reversals, sluggish economic growth, and declining opinion poll numbers.
Political analysis firm Eurasia Group has raised the likelihood of a leadership challenge against Starmer to 80%, up from 65% previously. “Keir Starmer is fighting for his political survival amid the most serious crisis of his premiership,” said Mujtaba Rahman, Eurasia Group’s managing director for Europe. He described Mandelson’s appointment as a “catastrophic decision.”
While some Labour MPs had planned to hold off on challenging Starmer until after a local special election on February 26 and the regional elections on May 7, Rahman warned that “it is no longer certain he can hold on that long.”
“Even if Starmer survives in the immediate term, the Mandelson affair has caused lasting damage. Many MPs see it as either ‘the tipping point’ or ‘the final straw,’” Rahman noted. A total of 81 Labour MPs are required to trigger a leadership election, and the current crisis could increase the chances that Starmer may be forced to step down if challengers reach that threshold.