Financial markets reacted negatively to Sir Keir Starmer’s attempts to cling on to his job amid a growing rebellion in the Labour ranks.

Borrowing costs climbed sharply and sterling weakened as investors signalled deep anxiety about the direction of the country and the collapse of support for Labour in last week’s elections.

The UK 10-year gilt yield surged toward the critical 5% level during the Prime Minister’s ‘reset’ speech, while 30-year gilt yields climbed even more aggressively, signalling deep concern over Britain’s long-term fiscal outlook.

The Prime Minister’s insistence that he would ‘not walk away’ failed to impress party members with about 70 Labour MPs, including Cabinet ministers, calling for him to set a timetable for his departure.

Among those who have called for him to go are Alan Gemmell, Central Ayrshire, Brian Leishman, Alloa & Grangemouth and Gordon McKee, Glasgow South.

The turmoil comes ahead of the King setting out the government’s agenda for the coming year with no certainty that any incomer would support the entire programme.

Nigel Green, CEO of deVere Group, said: “Financial markets are now treating UK political risk as a major factor driving asset prices.

“Investors are looking at a prime minister fighting for his political life after severe election losses while simultaneously trying to convince markets that fiscal discipline remains intact.

“This combination immediately raises the temperature in bond and currency markets.”

Sir Keir faced a set out plans for a closer relationship with the EU as part of yet another government reset aimed at saving his job.

The Prime Minister, who also confirmed the nationalisation of British Steel, restated that he was “not going to walk away” as he attempted to dissuade MPs from mounting a rebellion against his leadership.

He pledged to “face up to the big challenges” and said that “Incremental change won’t cut it… on growth, defence, Europe, energy, we need a bigger response than we anticipated in 2024 because these are not ordinary times.”

He stated that “this Labour government will be defined by rebuilding our relationship and by putting Britain at the heart of Europe. So that we are stronger on the economy, on trade, on defence.”

This would involve a “big leap forward” with Europe. However, it does not mean he is ready to take Britain back into the EU and the overall tone was to defend Labour’s record amid growing claims that it has become indefensible following last week’s election rout.

He took responsibility for the result that saw Labour lose hundreds of seats, and for people’s frustrations. “I get it, I feel it,” he said. “We will be better, and do better in the months and years ahead.

“If we do not get get this right our country will go down a very dark path,.”

Stating that he had learned a lot in the last two years, he said: “I know people are frustrated with me. I know I need to prove them wrong.”

Catherine West, the backbench Labour MP for Hornsey and Friern Barnet, is expected to launch a leadership challenge today, though she will need the written support of 81 MPs to trigger a contest.

However, there is a growing number of MPs calling on him to go – 42 so far since last week’s elections.

Her move is designed to bring ministers into the reckoning with Health Secretary Wes Streeting said to have the numbers.

The left wants the Greater Manchester mayor Andy Burnham, though he is not in parliament.