A rise in borrowing costs and warnings to avoid a “Liz Truss moment”. As Keir Starmer faces a potential leadership challenge, the spectre of the bond market looms large.

Amid febrile conditions in Westminster, the prospect of Britain switching prime ministers for a sixth time in seven years has fuelled a sharp sell-off in the market for UK government debt.

As Starmer’s grip on power appeared to be slipping away, the yield – in effect the interest rate – on 30-year government bonds, or gilts, briefly reached 5.8% on Tuesday, the highest level since 1998 , before slipping back after a challenge failed to immediately materialise.

However, selling pressure has been maintained on the UK government’s bonds relative to its G7 peers, with investors fearing a return to political instability in Britain and a leftwing shift by Labour involving higher levels of borrowing.

“The markets hate uncertainty, but they hate a political vacuum even more,” said Nigel Green, the chief executive of deVere Group.…