Keir Starmer’s government is embroiled in a severe political crisis marked by high-profile resignations and calls for his own departure, stemming from the controversial appointment of Peter Mandelson as ambassador to Washington despite his close links to convicted child sex offender Jeffrey Epstein. The turmoil escalated rapidly with the resignations of two senior figures: Morgan McSweeney, the prime minister’s chief of staff, and Tim Allan, Starmer’s director of communications, both stepping down within 24 hours.

Morgan McSweeney announced his resignation, taking “full responsibility” for advising Starmer on Mandelson’s appointment, acknowledging that Mandelson’s relationship with Epstein continued even after the disgraced financier served a jail term for sexual trafficking. Tim Allan, a former deputy press secretary for Tony Blair and founder of the PR agency Portland, cited his decision to stand down as a move to “allow a new No 10 team to be built.” His appointment had been somewhat controversial due to Portland’s past clients, and his departure came just five months into the role. These resignations have intensified the perception that Starmer’s Downing Street operation is in “freefall,” increasing pressure on the prime minister.

In response to the growing unrest, Keir Starmer addressed Downing Street staff, expressing his regret over the decision to appoint Peter Mandelson and apologizing to the victims, stating it was the “right thing to do.” He paid tribute to McSweeney, acknowledging their eight-year partnership, their collective effort in changing the Labour party, and their success in winning a general election. Starmer emphasized McSweeney's dedication and loyalty, asserting that the government must now “go forward from here” with confidence, focusing on key policies related to the cost of living, child poverty, and the NHS. Downing Street subsequently affirmed that Starmer is not resigning and remains “upbeat” and “confident,” committed to “delivering change across the country.”

Adding to the mounting pressure, Anas Sarwar, the Scottish Labour leader, publicly called for Starmer to resign, asserting that the “distraction has to end and the leadership in Downing Street has to change.” Sarwar accused No 10 of making “too many mistakes” and argued that Starmer was undermining Labour’s ability to win the crucial Scottish elections in May. He conveyed directly to Starmer that he “cannot survive appointing Peter Mandelson” and would “take Labour down” if he remained in power. Sarwar’s team believed Starmer’s continued leadership would destroy Scottish Labour’s electoral chances, especially after recent polls showed Labour trailing the Scottish National Party and Reform in Scotland.

Sarwar’s intervention shocked cabinet ministers in London, though David Lammy, the deputy prime minister, publicly backed Starmer, urging focus on Labour’s manifesto. Conservative leader Kemi Badenoch criticized Starmer, suggesting he allowed McSweeney to “carry the can” for his own decision and questioned Starmer’s honesty regarding his knowledge of Mandelson’s links to Epstein. Green party leader Zack Polanski also agreed that Starmer should resign.

The political instability quickly reverberated through financial markets. UK borrowing costs rose significantly on Monday, with the yield on 10-year UK government debt increasing to 4.597%, matching a two-and-a-half-month high. The yield on 30-year bonds rose to 5.42%, the highest since November 19, 2024, a week before the autumn budget. The pound also dipped against the euro. Analysts attributed these movements to investor jitters over Starmer’s future and concerns that a potential leadership change could lead to a loosening of fiscal policy, implying higher spending and less adherence to fiscal rules, which would typically be negative for UK government bonds and sterling. Neil Wilson, an investor strategist at Saxo UK, warned that gilts could sell off and sterling could be hit further if political uncertainty persists.

The crisis leaves Starmer