British investors on high alert as markets reopen, while in the UK the premiership of Keir Starmer is increasingly on the edge due to the crisis triggered by the Mandelson case. New “Epstein Files” released last week have revealed further details about Jeffrey Epstein’s dealings with the former ambassador to the United States. who, in addition to having received money, may have revealed to the pedophile financier who died in 2019 confidential information related to his political activity.
And so, while the prime minister struggles to stay afloat, the political earthquake from Washington claims its first, illustrious, political victims. On Sunday, the all-powerful chief of staff resigned. Morgan McSweeney, who took "full responsibility" for advising Starmer to appoint Mandelson. The communications chief resigned on Monday morning. Tim Allan. Two farewells that, according to many observers, could further weaken Starmer, who however in a message sent to the staff of No. 10 Downing Street reiterated his intention to remain anchored in his post: “The Government moves forward with confidence”, he writes.
Markets react: gilt yields soar, sterling falls
Markets, as we know, don't like political uncertainty. And today, as markets reopen on Monday, the first consequences are already visible, with gilts falling and yields that soar across the entire curve. UK 10-year government bond yields rose four basis points to 4,56%, remaining close to the highest levels since November, while those on gilt at 30 years old reached 5,38% (+0,8%). UK funding costs are also increasing at shorter maturities, with the yield on the2-year gilti at 3,65% and that on 5 years al 3,93%.
While stocks remain weak, Ftse100 of London which marks -0,15%, also reacts GBP which, while remaining essentially unchanged at 1,36 dollars, lost 0,3% against the single currency, trading at 0,8703 euros, near its lowest level in over two weeks. The British currency, moreover, had already fallen significantly last week, when doubts about the stability of the Starmer government were compounded by the internal rift within the board of the Bank of England which decided – by a surprising one-vote margin – to keep interest rates unchanged, leaving markets to suspect that things could go differently in future meetings.
“Investors tend to react negatively at the prospect of Starmer or Chancellor of the Exchequer Rachel Reeves leaving their posts, over fears they could be replaced by colleagues less committed to fiscal rigor”, He comments Bloomberg, while in an interview with sky news, Former Work and Pensions Secretary Pat McFadden says, “It’s not good for the country to have a new prime minister every 18 months or two years. It brings chaos and uncertainty—economically, politically, and globally.”
In this context, the gilt auctions In recent weeks, they have shown continued strong demand, and investors' attention is now turning to the sale of a five-year gilt scheduled for Tuesday, which has become a real test. Economic growth data, due to be released on Thursday, is also eagerly awaited.
First McSweeney, then Allan: Starmer is "falling apart"
Already in the 2024, Peter Mandelson's appointment had caused quite a stir, receiving much criticism for the relations that the former minister and Labour Party veteran had had with Jeffrey Epstein the pedophile financier, who committed suicide in prison in 2019. Added to this was the fact that the position is usually assigned to a career diplomat and not to a politician.
Last September, after the first publication of the “Epstein Files” revealed how close the ties were between the former ambassador to Washington and the US financier, Starmer had decided to fire him, but the situation has exploded in the last week. From documents declassified by the US Department of Justice on January 30, it has emerged that Mandelson, in addition to having received thousands of dollars from Epstein, between 2009 and 2010, when he was minister, would have confidential information revealed related to his political activity. Scotland Yard has opened an investigation into these revelations, which have fully affected the Labour government.
Morgan McSweeney, until yesterday Starmer's chief of staff and right-hand man, considered the architect of Labour's victory in the 2024 elections, was identified by the British media as the person who in 2024 had pushed for Mandelson's appointment as ambassador to the United States, the most important role in British diplomacy. "After careful consideration, I have decided to resign from the government. The decision to appoint Peter Mandelson was wrong. It has damaged our party, our country, and confidence in politics itself," said McSweeney – whom British newspapers describe as a sort of political godson of the former ambassador – in the statement announcing his resignation.
24 hours later it also arrived Tim Allan's step back, Downing Street's director of communications, who announced his departure on Monday morning. Allan, who served alongside Tony Blair from 1992 to 1998 and founded the Portland communications agency, had assumed the role in September 2025. His resignation brings the number of communications directors who have left Downing Street during Starmer's premiership to four.
Starmer is increasingly weak. And the risks aren't over.
“The decision of his most trusted advisor to step aside could grant Starmer a little time, but signs of widespread discontent among MPs, compounded by catastrophic poll results, are creating the impression that his days are numbered,” he toldReuters Benjamin Picton, senior market strategist at Rabobank
Even if the British Prime Minister were to survive the Mandelson affair, his problems wouldn't end there. Indeed. The eyes of the United Kingdom are already on theby-election on February 26 in Gorton and Denton, a constituency that is supposed to be a Labour stronghold but where the Greens and Reform UK are now vying for first place. A wider round of voting will be held just over two months later. local elections, where polls suggest the Labour Party will lose a significant number of seats. That could be the moment of reckoning, assuming Starmer is still in power in the meantime.
