The pound tanked and gilts soared this morning as the markets reacted badly to the possibility of Andy Burnham becoming prime minister.

The yield on 30-year UK Government bonds, also known as gilts, lifted to fresh recent highs, rising by 16 basis points to 5.821 points, the highest in almost three decades.

Ten-year gilts were also suffering another sell-off, with yields firmly above 5 per cent, up 16 basis points to 5.155 per cent.

The pound was down as much as 0.4 per cent against the US dollar, before settling around 0.2 per cent lower at 1.334 US dollars.

Political concerns added to worries over the inflation outlook amid the Iran war to send London’s blue chip FTSE share index sharply lower. 

It came as allies of Sir Keir Starmer fought a desperate rearguard action to try to protect the lame duck Prime Minister.

Mr Burnham last night launched the first stage of what is seen as a campaign to take control of Labour and the country that could put him in No10 by the summer.

Housing Minister Steve Reed insisted Sir Keir was ‘fine’ and getting on with the job in hand as he toured TV and radio studios today after a ‘terrible week’.

And he warned Mr Burnham and any other Labour figure planning to challenge the PM against mimicking the previous Conservative government and ‘doomscrolling’ through leaders in a short period.

But his attack came as Sir Keir’s grip on power appeared to have weakened beyond saving.

In an astonishing turn of events last night Greater Manchester Mayor Mr Burnham confirmed he would seek to return to the Commons, a move seen as a precursor to a leadership challenge. 

Political concerns added to worries over the inflation outlook amid the Iran war to send London’s blue chip FTSE share index sharply lower

Housing Minister Steve Reed insisted Sir Keir was ‘fine’ and getting on with the job in hand as he toured TV and radio studios today

In an astonishing turn of events Greater Manchester Mayor Mr Burnham last night confirmed he would seek to return to the Commons, a move seen as a precursor to a leadership challenge

He plans to run in a by-election in the city seat of Makerfield after Labour incumbent Josh Simons – a former Starmer loyalist – stepped aside to allow him a route back to Westminster.

This morning Labour’s deputy leader Lucy Powell will say she is confident Mr Burnham will have the support of the ‘vast majority of the party and movement’ to make a bid to come back to Westminster. 

But he still faces the challenge of winning a seat heavily tipped to swing to Reform. 

If he wins it would be a strong sign he could reverse Labour’s massive unpopularity in the polls and keep Nigel Farage out of power at the next general election. 

Stroud MP Simon Opher, who backs Mr Burnham, admitted winning Makerfield was a ‘tough ask’ but told BBC Radio 4’s Today Programme: ‘He could win the next election for Labour.’ 

If he loses it will likely still lead to a leadership bid from someone else, with Wes Streeting having quit as health secretary yesterday and Angela Rayner and Ed Miliband waiting in the wings. 

Mr Farage has vowed to ‘throw absolutely everything’ at the Makerfield by-election, in what will be the most dramatic and consequential race in over half a century.

Of the eight wards within Mr Simons’s seat that went to the polls in local elections last week, Reform UK won every single one and trounced the Labour Party.

According to polling experts Britain Predicts, Reform would take the seat if a general election were held tomorrow, clearing Labour by 13 points.

The seat has returned Labour MPs at every election since it was created in 1983, with sizable majorities up until 2019 when Boris Johnson’s Tories came within 5,000 votes of taking it.

On Thursday evening, Mr Burnham said he wanted to return to Westminster to ‘make politics work properly for people’ after Mr Simons said he would stand down so Mr Burnham can ‘drive the change our country is crying out for’.

The Prime Minister does not plan to block Mr Burnham from standing to be the candidate in the Makerfield by-election, but first the party’s National Executive Committee needs to give him the green light, something expected to happen when it meets next week.

Mr Reed acknowledged that Sir Keir is unpopular, but told Sky News: ‘What happens when you’re the leader of the Government at a time when the public are so angry with the state of our public services and the economy, is it focuses down on that individual.

Mr Reed acknowledged that Sir Keir is unpopular, but told Sky News: ‘What happens when you’re the leader of the Government at a time when the public are so angry with the state of our public services and the economy, is it focuses down on that individual’

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‘So we can either copy the Tories, they doomscrolled through leader after leader, five I think, in eight years, prime ministers. It didn’t help them one jot.

‘What we need to do is all of us come together behind the Prime Minister and focus on how we can deliver the change the British public want to see faster.’

Kemi Badenoch last night warned that the Labour infighting would paralyse the Government for months at the very moment Sir Keir has pledged to accelerate reforms following Labour’s disastrous performance at the local elections.

The Tory leader said: ‘The Labour Party has now descended into civil war. And while they’re sharpening their knives and plotting in the bars of Westminster, nobody is running the country.’

Last night the pound fell to its lowest level in a month, dropping to below $1.34 at one point, amid mounting expectation that the Government will lurch even further to the Left under a new prime minister.

A Whitehall source said civil servants would ‘down tools’ until the uncertainty over the direction of the Government is settled.