Labour's civil war triggered a markets meltdown yesterday – and left the Government 'paralysed'.

Keir Starmer was locked in an extraordinary standoff with his MPs last night after he brushed aside calls to quit and told rivals Wes Streeting and Angela Rayner to put up or shut up.

Today he is expected to plead with Mr Streeting and Greater Manchester mayor Andy Burnham to drop their 'destabilising' bids to unseat him during separate talks in No 10.

On a dramatic day at Westminster, four Labour ministers resigned, saying they no longer had confidence in Sir Keir. The number of Labour MPs calling for him to go rose to 90, and Home Secretary Shabana Mahmood was forced to deny she is on the brink of quitting after telling the PM to set out a timetable for his departure.

Deputy Prime Minister David Lammy, meanwhile, appealed to Labour MPs to step back from the brink – warning that the party's 'navel gazing' was damaging the country.

The prospect of a Labour leadership coup sparked panic on financial markets as traders took fright at the thought of a new leader dragging the Government further Left.

An ally of Mr Burnham said the markets would have to 'fall into line' if he seized power. But those same markets yesterday forced up government borrowing costs to the highest level this century. The pound also fell against both the dollar and the euro.

Donald Trump last night said it was up to Sir Keir whether to quit as he warned that the Prime Minister was 'windmilling the country to death'.

The US President also argued the UK needed to get 'tough on immigration' and 'open up oil in the North Sea' as he listed all the things the Labour leader was doing wrong.

In an astonishing admission, Sir Keir told the Cabinet that the pressure for him to quit had been 'destabilising for government' and had produced 'a real economic cost for our country and for families'.

Tory Shadow Chancellor Sir Mel Stride said: 'Labour chaos is costing us billions. Markets can see Starmer is weak, lurching Left to placate his backbenchers, and could soon be replaced by rivals who want to borrow, tax and spend even more.

'The latest leadership drama risks costing us yet more billions. We simply cannot afford any more of this.'

An ally of the Prime Minister claimed that speculation of his resignation had cost the Treasury £2billion.

The bitter infighting also threatened to overshadow today's King's Speech, when the monarch will set out a legislative programme that could be junked in days if Sir Keir is forced out.

On a critical day for Labour:

• Party sources told the Daily Mail the PM had considered resigning on Monday night until allies of the Home Secretary briefed the media that she had told him to quit;
• Mr Lammy said none of the pretenders to the Labour crown appeared to 'have the numbers' to launch a formal leadership challenge; 
• Sir Keir agreed to hold showdown talks with Health Secretary Mr Streeting today after snubbing him at Cabinet, prompting speculation about a peace deal; 
• Ms Rayner told Labour MPs she was ready to launch her own leadership bid if Mr Burnham failed to get back to Westminster in time; 
• Ed Miliband denied reports he could stand if Mr Streeting triggers a contest while Mr Burnham seeks a return; 
• Labour's former deputy leader Harriet Harman said Mr Burnham was 'clearly part of the solution', just days after she was appointed as an adviser to the PM; 
• US ambassador Warren Stephens said the 'frequent turnover' of British prime ministers creates a 'problem' for Washington in building personal ties; 
• Some 112 Labour MPs signed a letter urging the PM to stay on, as splits emerged across the party over how to respond to last week's crushing local election results. 

Sir Keir headed off criticism at the Cabinet meeting by accepting 'responsibility' for last week's disastrous results, before immediately moving the conversation on to the Middle East.

The PM told his top team: '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.'

Allies of Mr Streeting said Sir Keir refused to discuss concerns about leadership after the meeting.

Under Labour's rules, 81 MPs have to nominate a single candidate to trigger a leadership contest. As the hours ticked by without a formal challenge yesterday, No 10 grew increasingly confident it had seen off the immediate threat. 

Mr Lammy said: 'It's been 24 hours now and no one seems to have the numbers to stand against Keir Starmer. Let's get on with the business of government and running the country.'

However, critics believe a challenge is 'inevitable'.

The Government is committed to publishing the Mandelson files this month, dragging Sir Keir back into controversy over his disastrous decision to appoint the disgraced Labour peer as US ambassador.

Labour MP Jonathan Hinder said Sir Keir 'cannot survive this many MPs losing confidence in him'. He told the BBC: 'The PM is going... it's time to be real. He's going, no doubt about it.'

Chris Curtis, of the Labour Growth Group, said a change of leadership was 'probably coming at this stage'.

'I think that clearly when this number of MPs have come out and said that they think that a change of leadership is required... it's going to be very difficult to put that genie back into the bottle,' he told Sky News.

Labour grandee Lord Blunkett warned the Government was becoming 'a circus', saying: 'We need stability so the markets don't damage our economy still further.

'But on the other hand we have got to try and save my party. There are still people in Downing Street sadly who do not get how incredibly damaging last week's elections were – they are not in touch. [It's] a complete dog's dinner. We are in a mess as a country, and my party, sadly, is in a mess as well.'

Tory chairman Kevin Hollinrake said Labour infighting was 'paralysing' the Government.

UK government borrowing costs yesterday hit their highest level of the century – with the yield on 30-year bonds, or gilts, rising above 5.8 per cent for the first time since 1998. The pound fell by more than a cent against the dollar to below $1.35.

No 10 last night announced new appointments after four junior ministers resigned.

Nesil Caliskan, MP for Barking, Natalie Fleet (Bolsover), Catherine Atkinson (Derby North) and Preet Kaur Gill (Birmingham Edgbaston) were appointed as parliamentary under-secretaries. Gen Kitchen (Wellingborough and Rushden) and Deirdre Costigan (Ealing Southall) were installed as whips.