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(Sharecast News) - European shares were lower at midday after embattled UK Prime Minister Keir Starmer refused to resign, despite calls from his own ministers for the unpopular leader to stand down, sending bond yields higher and the pound lower.
The pan-regional Stoxx 600 index was down 0.69% to 608.58 by 1147 BST. Britain's FTSE 100 fell 0.40% as government bond yields hit their highest level since 1998 higher on fears public spending could rise under a new leader.
Despite growing calls for him to stand down from senior cabinet ministers, including Foreign Secretary Yvette Cooper, after Labour's battering in last week's local council elections, Starmer on Tuesday morning remained defiant, saying he took responsibility for the drubbing and "for delivering the change we promised".
"The Labour Party has a process for challenging a leader and that has not been triggered. The country expects us to get on with governing. That is what I am doing and what we must do as a Cabinet."
Any challenger would have to garner the support of 81 MPs to launch a leadership bid, with Health Secretary Wes Streeting seen as a main contender.
The UK 20-year bond yield rose 12 basis points to 5.734% and the 30-year gained 11 bps to 5.794% - the highest levels since the early days of Tony Blair's premiership.
XTB research director Kathleen Brooks said UK bond yields were facing a "double whammy" of an energy price spike and a political crisis.
"The risk is that we get a bond market meltdown in the UK in the coming days. If that happens, will it quiet the factions of the Labour party who have threatened to ignore the bond market, ditch fiscal rules and boost public spending even more?"
Meanwhile, hopes the Iran war could be ended any time soon were dashed by US President Donald Trump, dismissed Tehran's latest peace proposals as "stupid".
"I would say the ceasefire is on massive life support, where the doctor walks in and says: 'Sir, your loved one has approximately a 1% chance of living.'," he said on Monday.
The response pushed oil prices even higher, with Brent crude up 3.35% to $107.70 and West Texas Intermediate hitting $101.65 a barrel.
In equity news, shares in UK bakery chain Greggs jumped on an upbeat trading update, while German chemicals giant Bayer was also up on results.
Reporting by Frank Prenesti for Sharecast.com