European stocks close lower, sterling slides on UK political turmoil

European stocks ended Tuesday in negative territory as prospects for a speedy resolution to the U.S.-Iran war appear increasingly remote, while U.K. Prime Minister Keir Starmer’s premiership hangs by a thread.

The pan-European Stoxx 600 was almost 1.1% lower at the end of the session, with most sectors and major bourses firmly in negative territory.

Investors are watching a growing political crisis in the U.K., as government ministers joined more than 70 Labour Party lawmakers with calls for Starmer to resign or set out a timetable for his departure. It comes after the ruling party’s dire performance in local council elections last week.

But Starmer told his weekly cabinet meeting Tuesday that he was not resigning and would instead “get on with governing.” He reminded colleagues that the Labour Party has a process for leadership challenges, which had not yet been triggered.

The prime minister took responsibility for the poor election results and acknowledged on Monday that he had “doubters.” Starmer pledged to “face up to the big challenges” facing the country, but the speech failed to impress party insiders as several ministerial aides quit on Monday.

Yields on U.K. government bonds, known as gilts, extended gains on Tuesday. The yield on the benchmark 10-year gilt was last seen roughly 10 basis points higher at 5.10%.

The British pound, meanwhile, was down 0.7% against the U.S. dollar, and lost 0.3% versus the euro.

Meanwhile, optimism over a looming U.S.-Iran peace agreement was dealt a reality check late on Monday when President Donald Trump said the ongoing ceasefire is “on life support” after Tehran sent an “unacceptable” counter to Washington’s proposal to end the war.

The state of the month-old truce is “unbelievably weak,” Trump told reporters in the Oval Office.