May 12 (Reuters) - UK shares slipped on Tuesday as investors were rattled by the uncertainty surrounding Prime Minister Keir Starmer's future, while renewed concerns about the war in the Middle East exacerbated inflation worries.
Doubts about the domestic political situation remain even after Starmer's impassioned plea on Monday, where he urged voters and Labour Party lawmakers to stick with him and avoid a leadership contest he said would only bring chaos.
Starmer has vowed to stay at the helm, but his position looks fragile because more than 80 Labour lawmakers have publicly called for him to set a resignation date so the party could install a new leader in an orderly manner.
"Markets tend to dislike a lack of certainty over who runs a government," said Neil Wilson, UK investor strategist at Saxo, noting that the "fiscal position is already fragile."
The blue-chip FTSE 100 index fell 0.4% as of 1152 GMT, while the midcap FTSE 250 dropped 1.1%.
Long-term UK borrowing costs surged to their highest level in nearly 30 years, driven by concerns that a potential successor to Starmer might adopt a more left-wing stance and advocate for increased spending, despite Britain's already strained finances.
"The markets are pretty nervous. People are just all scratching their heads and saying, 'What is he (Starmer) doing?'" said David Morrison, senior market analyst at Trade Nation.
MIDDLE EAST STALEMATE INCREASES INFLATION RISK
Investors were also concerned by the lack of progress in resolving the Middle East conflict, with U.S. President Donald Trump saying the ceasefire with Iran was "on life support."
Tehran rejected a U.S. proposal to end the conflict and stuck to a list of demands that Trump described as "garbage".
Oil prices jumped, with Brent crude futures rising 3% and adding to fears of increasing financial burden on UK households.
Bank stocks fell 2.6%, dragged lower by a 5.2% decline in shares of Metro Bank and a 4.0% drop in Barclays.
Aerospace and defence stocks also slipped 1.9%, while the rate-sensitive real estate sector fell 2.1%.
Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel
Source: Reuters