UK PM Starmer is fighting for his political future in a key speech

British Prime Minister Keir Starmer vowed to “take on the big challenges” facing the UK in a do-or-leave speech on Monday, amid mounting pressure on his leadership.

Starmer cited growth, national defence, the UK’s relationship with Europe and energy needs as key issues to be tackled urgently, in a bid to convince his Labor Party colleagues to keep him in the job.

“Meeting the challenges our country is facing, the growing revolution will not cut it,” he said, noting that “some people are tired of me” and admitting that he has “doubters.”

“I know I have to prove them wrong and I’m going to do that,” he told the audience of his fans.

The speech comes after the ruling Labor Party lost heavily in local elections last week. Although the vote did not affect how the UK is governed nationally, it was seen as an important indicator of public sentiment towards the ruling party and its leader.

These results have caused members of the Labor Party to immediately call for the prime minister to step down, and many are believed to face leadership challenges.

Starmer insists he will lead the Labor Party into the next general election, which will be held in 2029, but speculation about a change in prime minister has put increasing pressure on the government’s already high borrowing costs.

“You’re going to see hope, urgency and who’s side we’re really on,” Starmer said on Monday, adding that “people need hope. We’re going to face big challenges and we’re going to make big fights.”

Starmer on Monday also promoted his government’s bid to deepen ties with the European Union.

Criticizing Nigel Farage, the leader of the far-right Reform UK party which saw huge gains in last Thursday’s local council elections, and the opposition Conservative Party, Starmer said such parties “are defined by breaking our relationship with Europe.”

“This Labor Government will be defined by rebuilding our relationship and by putting Britain at the heart of Europe. To be strong in the economy, in trade, in defense, you name it,” said Starmer, promising to build closer links with the continent, especially for young people who want to work, live or study in the EU.

As of 8pm on Sunday, 42 Labor MPs wanted Starmer to resign. Labor MP Catherine West, who has led calls for a leadership contest, told Sky News on Sunday that she would launch her own bid if Starmer’s voice proved unsatisfactory.

Starmer’s former deputy, Angela Rayner, is another potential leadership contender. He said on X Sunday “what we are doing is not working, and it has to change. This could be the last chance for the Labor Party.”

Other potential challengers include Health Secretary Wes Streeting and Manchester Mayor Andy Burnham, although he would have to be elected as an MP to run for the leadership.

Financial markets will be watching leadership bids and UK borrowing costs closely after the speech.

With the extent of Labour’s by-election defeat evident last Friday, the yield on 10-year UK government bonds, known as gilts, fell 4.904% after Starmer insisted he would not stand down. After Starmer concluded his speech on Monday morning, the yield stood at 4.957%, up 4 basis points but little changed from its pre-speech position.

“Let’s see what happens today,” Kallum Pickering, chief economist at Peel Hunt, told CNBC on Monday.

“Markets are very good at looking at noise but if you get a leadership challenge, I wouldn’t be surprised if you see bond yields go up a little bit,” Pickering told CNBC’s “Europe Early Edition.”

The UK has the highest borrowing costs in the G7 group of industrialized countries, reflecting concerns about the country’s continued inflationary pressures and weak growth, Pickering noted. The economic fallout of the Iran war exacerbated the issue.

“When it comes to some immediate political developments, the fact that bonds fell in the UK on Friday but not elsewhere, suggests that there is still a political element to it. [too],” Pickering said.

“So even if we remove the political noise. Yes, the bond price will increase compared to the beginning of the year, but it may be lower than they were, let’s say. [by] 10-15 basis points.”