The recent release of additional Epstein documents triggered a chain of events that found U.K. Prime Minister Keir Starmer grappling with his political survival, even though he had no prior relationship with the deceased financier and sex offender.
Starmer is facing scrutiny regarding his choice to appoint Peter Mandelson as U.S. ambassador, despite being aware of Mandelson’s ties to Epstein. The latest information unveiled by the U.S. Department of Justice disclosed more communications between Mandelson and Epstein, including exchanges that occurred after Epstein had admitted guilt in a Florida case of felony solicitation involving a minor.
Starmer, who is enduring calls for his resignation, has conveyed remorse to Epstein’s victims for placing his trust in Mandelson’s “falsehoods.”
Here’s the latest
Cabinet ministers supporting Starmer have rallied around him amidst escalating frustration from both opposition parties and members of his own party regarding the appointment of Mandelson.
The resignation of two key officials in quick succession heightened the pressure, as Starmer’s chief of staff, Morgan McSweeney, and communications director, Tim Allan, both departed their roles.
This uproar prompted Anas Sarwar, leader of Starmer’s Labour Party in Scotland, to demand his resignation.
“The distraction must cease, and Downing Street’s leadership needs transformation,” Sarwar stated during a press conference on Monday.
Following this, Starmer held a crucial discussion with Labour parliamentarians, during which he reportedly asserted that he was “not inclined to step aside.”
A representative from the Prime Minister’s Office was unavailable for immediate comment.
Who is Peter Mandelson?
Mandelson has been a significant figure in the center-left Labour Party for many years, playing an essential role in the “New Labour” movement that elevated Tony Blair to the premiership after a decisive electoral triumph in 1997.
Recognized as a behind-the-scenes strategist and referred to as the “Prince of Darkness,” Mandelson served as a Labour member of parliament from 1992 to 2004 and held cabinet positions under Blair.
He exited parliament to take on a role as a European Commissioner before returning to the U.K. in 2008 to collaborate with then-Prime Minister Gordon Brown, having been appointed to the unelected House of Lords.
Upon assuming office as prime minister in July 2024, Starmer appointed Mandelson as ambassador in Washington the following December, a position he characterized as “a tremendous honor.” This appointment raised eyebrows due to Mandelson’s prior resignations—once in 1998 and again in 2001—amid scandals involving failure to declare a loan and alleged interference with a passport application.
Starmer dismissed Mandelson from the ambassadorship in September after it was revealed that new information concerning his ties to Epstein had emerged.
The subsequent release of millions of documents from the U.S. Department of Justice last week indicated further connections between Mandelson and Epstein. These disclosures led to claims that Mandelson had shared sensitive government information with Epstein following the 2008 global financial crisis.
One correspondence suggested that Mandelson alerted Epstein about an imminent €500 billion bailout for banks in 2010.
In a statement to U.K. broadcaster Sky News last month, Mandelson expressed regret for maintaining his friendship with Epstein after the latter’s 2008 conviction.
“I was not culpable, I had no awareness of his actions, and I lament, and will regret until my last breath, that powerless women were not provided the protection they deserved,” he remarked.
Markets react
The costs of U.K. government borrowing surged on Monday, amid intensifying pressure on Starmer.
However, by Tuesday, as many Cabinet ministers expressed solidarity with the prime minister, yields on U.K. government bonds, referred to as gilts, began to decrease.
The yield on the benchmark 10-year gilt was down by 3 basis points to 4.496%, while the 30-year gilt yield also dropped by 4 basis points to close at 5.309%.
“The ambiguity surrounding Keir Starmer’s prospects poses challenges for U.K. bond markets, especially since inflation is anticipated to decrease significantly in the upcoming months and the Bank of England seems poised to lower interest rates as early as March, with possible additional cuts later in the year,” stated Charlie Lloyd, head of investments at Shackleton Advisers, in a note on Monday.
A resignation from Starmer would initiate a leadership contest within the Labour Party to find a successor, which “would nearly certainly result in short-term volatility in U.K. bond markets and an increase in borrowing costs through elevated yields,” Lloyd noted.
“An extended contest might affect the economy if gilt yields remained elevated compared to other bond markets for a prolonged duration, alongside the potential ramifications for consumer confidence,” he added.
Who could replace Starmer?
Should Starmer resign, a leadership election to fill his position would commence, involving several rounds of voting to narrow down the candidates. If Starmer declines to resign but a rival garners sufficient backing to prompt a leadership vote, both he and the challenger would be presented to the members for a decision. Either scenario could extend over several weeks.
Possible candidates to succeed Starmer include the left-oriented Angela Rayner, who stepped down as deputy prime minister last fall due to a tax scandal, the current health minister, Wes Streeting, and former party leader Ed Miliband.
Andy Burnham, the present mayor of Greater Manchester, was recently prevented from contesting in a special election that could have enabled his return to parliament—setting the stage for a possible leadership bid.
Despite Burnham’s appeal, investors express concern over a departure from the fiscal strategies implemented by Starmer and his finance minister, Rachel Reeves, aimed at stabilizing the U.K.’s public finances.
Kallum Pickering, chief economist at Peel Hunt, commented in a note on Tuesday that while Burnham “polls strongly,” “it remains uncertain whether his successful local economic initiatives will translate into effective national policies—his previous remarks depicting the U.K. as ‘in hock to the bond markets’ have unsettled investors.”
Pickering noted that Rayner’s ongoing investigation regarding her tax situation “complicates her prospects—and raises the narrative of replacing one scandal-ridden PM with another.” Yet, he acknowledged, “Her support within the party indicates she might unify the left and moderates.”
