Why the Epstein furor could bring down Starmer’s UK government

The release of further Epstein files last week triggered a series of events that left U.K. Prime Minister Keir Starmer fighting for his political life, despite the fact that he never knew the late financier and sex offender.

Starmer is under pressure over his decision to appoint Peter Mandelson as U.S. ambassador, despite knowledge of Mandelson’s connections to Epstein. The latest document release by the U.S. Department of Justice revealed more messages between Mandelson and Epstein, including after Epstein had pleaded guilty in Florida to a state charge of felony solicitation of prostitution, a case that involved an underage girl.

Starmer, who is facing calls to step down, has apologized to the victims of Epstein for believing Mandelson’s “lies.”

Starmer’s Cabinet ministers have sought to rally around him, who has faced growing anger from opposition parties and members of his own party over the decision to appoint Mandelson.

Two resignations in quick succession had ratcheted up the pressure, with Starmer’s chief of staff, Morgan McSweeney, and communications director, Tim Allan, both stepping down.

The furor led Anas Sarwar, who leads Starmer’s Labour Party in Scotland, to call on Starmer to resign.

“The distraction needs to end and the leadership in Downing Street has to change,” Sarwar said at a press conference on Monday.

Starmer held a pivotal meeting with Labour members of parliament afterwards, in which he reportedly said he was “not prepared to walk away.”

A spokesperson for the Prime Minister’s Office was not immediately available for comment.

Mandelson has been a key figure for the center-left Labour Party for decades, playing a pivotal role in the so-called “New Labour” movement that saw Tony Blair become prime minister after a landslide election victory in 1997.

Known as a behind-the-scenes fixer and nicknamed the “Prince of Darkness,” Mandelson was a Labour member of parliament from 1992 to 2004 and served in Blair’s cabinet.

He left parliament to become a European Commissioner before returning to Britain in 2008 to work with then-Prime Minister Gordon Brown, having been appointed to parliament’s unelected House of Lords.

After becoming prime minister in July 2024, Starmer appointed Mandelson as ambassador in Washington that December, a role he described at the time as “a great honor.” The appointment was controversial as Mandelson had twice previously resigned — in 1998 and 2001 — over scandals: one about not declaring a loan and another about allegedly influencing a passport application.

Starmer fired Mandelson from the ambassadorship in September, after Downing Street said new information had come to light about the extent of his association with Epstein.

The subsequent release of millions of files from the U.S. Department of Justice last week showed further links between Mandelson and Epstein. They prompted accusations that Mandelson had sent market-sensitive government information to Epstein following the 2008 global financial crisis.

One exchange appeared to show Mandelson giving Epstein advance notice of an impending 500 billion euro bailout for banks in 2010.

In a statement to U.K. broadcaster Sky News last month, Mandelson apologized for remaining friends with Epstein following his 2008 conviction.

“I was not culpable, I was not knowledgeable for what he was doing, and I regret, and will regret to my dying day, the fact that powerless women were not given the protection they were entitled to expect,” he said.

U.K. government borrowing costs jumped on Monday, amid growing pressure on Starmer.

By Tuesday, after many Cabinet ministers rallied around the prime minister, yields on U.K. government bonds, known as gilts, were moving lower.

The yield on the benchmark 10-year gilt was 3 basis points lower at 4.496%, while the 30-year gilt yield also fell by 4 basis points to settle at 5.309%.

“Uncertainty over Keir Starmer’s future is unhelpful for U.K. bond markets, particularly since inflation is on track to fall quite sharply in the coming months and the Bank of England appears to be gearing up to cut interest rates as soon as March, with one or two further cuts later in the year,” Charlie Lloyd, head of investments at Shackleton Advisers, said in a Monday note.

Starmer’s resignation would trigger a contest within the Labour Party to replace him as leader, which “would almost certainly lead to short-term volatility in U.K. bond markets and an increase in the cost of borrowing through higher yields,” Lloyd added.

“A prolonged contest could impact the economy if gilt yields traded at a premium to other bond markets for an extended period, not to mention the potential impact on consumer confidence,” he continued.

If Starmer resigned, a leadership contest to replace him would start and involve a series of votes whittling down the candidates. If Starmer refused to resign but a challenger gained enough support to trigger a leadership vote, the prime minister and that challenger would be put to the ballot. Either process could take weeks.

Among the potential candidates to replace Starmer are left-leaning Angela Rayner, who resigned as deputy prime minister last autumn after a tax scandal, the current health minister, Wes Streeting, and former party leader Ed Miliband.

Andy Burnham, the current mayor of Greater Manchester, was recently blocked from standing in a special election that could have seen him return to parliament — paving the way for a potential leadership challenge.

Despite Burnham’s popularity, investors are wary of a pivot away from efforts by Starmer and his finance minister, Rachel Reeves, to shore up the U.K.’s public finances.

Kallum Pickering, chief economist at Peel Hunt, said in a note on Tuesday that Burnham “polls strongly” but “whether his successful regional economic policies translate into successful national policies is an open question — his past snipes that the U.K. is ‘in hock to the bond markets’ have alarmed investors.”

Pickering said the fact that Rayner remained under investigation for her tax affairs “hurts her chances — and risks the narrative of replacing one scandalised PM with another.” But he added: “Her popularity within the party suggests she may be able to consolidate the left with the moderates.”