Britain faces another testing week on financial markets as investors grapple with civil war in the Labour Party and mounting concerns about the economy.

Government borrowing costs have risen to their highest level so far this century in recent days, with the 30-year gilt yield topping 5.8 per cent for the first time since 1998.

The pound has also fallen sharply against the dollar, dropping towards $1.33.

The latest ructions have come as the future of Keir Starmer hangs in the balance, with investors warning that a lurch to the Left under a new leader would leave Britain at the mercy of 'bond vigilantes' and send borrowing costs higher still.

This comes on top of the inflation shock triggered by the Iran war and the closure of the Strait of Hormuz, which has choked off energy supplies and sent oil and gas prices soaring.

The International Monetary Fund will deliver its verdict on the state of the economy in its so-called 'Article IV' annual health check today.

The watchdog has already warned that Britain faces the biggest shock of any G7 nation from the conflict in the Middle East, slashing growth forecasts for this year by 0.5 percentage points to just 0.8 per cent, as well as forecasting higher inflation and unemployment.

Official figures from the Office for National Statistics (ONS) tomorrow will show where unemployment stood in the first three months of the year, having already leapt from around 4 per cent to 4.9 per cent under Labour. Separate figures from the ONS on Wednesday will reveal the inflation rate in April, having surged to 3.3 per cent in March – well above the 2 per cent inherited by Labour when it came to power.

Sir Keir and Chancellor Rachel Reeves have been blamed for driving up unemployment and inflation, even before the Iran war, through a string of painful tax hikes and other costly measures imposed on business such as increases in the minimum wage.

Neil Wilson, a strategist at trading firm Saxo, warned of 'deep market anxiety over the prospect of Andy Burnham defeating Keir Starmer to become the next Prime Minister, with expectations for higher tax, spending and borrowing paramount concerns'.