Sir Keir Starmer has, this morning, announced his resignation as Labour leader and as PM in a dramatic speech given on the steps of 10 Downing Street. In a relatively short statement, he was clearly emotional at the close of it as he paid tribute to his family who have supported him through his years as leader. He also pledged his support for whoever takes over the leadership of the party and thereby as PM. Much debate now surrounds a future leadership election. Andy Burnham, who is widely expected to fill the role as leader, will be in Westminster later today.
Richard Carter, head of fixed interest research at Quilter Cheviot said:
“The revolving door of UK Prime Ministers is spinning once again, with Keir Starmer lasting just short of two years in the job. It is now expected that Andy Burham will be coronated by the Labour Party as its next leader and consequently as UK Prime Minister, although Starmer will continue to allow for an orderly transition. What will be interesting to watch from here is the extent that the party has a leadership contest, or whether it is considered a one-horse race and thus everyone steps aside.
“Markets are wary of Burnham’s previous policy positions so they would prefer to see ideas for governing fleshed out via a leadership contest, keeping surprises to a minimum. There are difficult decisions around welfare and defence spending lurking, with each likely to have an impact on gilts and wider UK markets. For now, given the economic team Burham has been putting in place, alongside the fact he does not appear to be seeking a new mandate, we are probably going to see more of a continuation of the current direction from the government. Cabinet appointees will likely be scrutinised, however, for their growth friendly credentials.
“Last week’s borrowing figures highlight just how messy this inheritance will be, and as such, there is unlikely to be any immediate silver bullet to the UK’s economic woes. Without that new mandate, there is likely to be more tinkering with personal taxation around the edges and as such that will weigh on growth. Gilt yields have crept up in recent days as the political picture resolves itself. With UK still at a yield premium to developed market peers, investors and markets will want to see a credible economic plan that can help ignite growth and put the public finances back onto surer footing.”
James Lynch, Investment Manager at Aegon Asset Manager said: “On the announcement of the resignation of the UK Prime Minister, Gilts have met this with a shrug of indifference.
”The best case for the market here is that there is no challenge to Andy Burnham which will give him time to get his team together and also actually come up with some policies for what will be a fast approaching budget. If he is challenged it will become a contest of who can outspend each other the most in order to win power, and the Gilt market I am sure will start to move.
”For now there is relative calm, but it does have an uneasy feel about it.”
Michael Field, Chief Equity Strategist at Morningstar, provided the following insight on what this means for investors saying: “With Keir Starmer resigning, the first question on investors’ minds is “What does this mean for markets?”
“The FTSE 100 is down very marginally, but in-line with the rest of Europe, which would suggest that investors are broadly indifferent to the announcement. Investors crave stability and visibility on government policy. For that reason, when Labour returned to power two years ago, with a strong backing from the electorate, markets celebrated and Gilt yields fell, primarily on the premise that the UK would have a stable government for a decent period of time.
“Recent weaking of Labour’s hold over the electorate has negatively affected the perception of the UK as a place to invest, with Keir Starmer’s worsening ratings a key cause of this. For this reason, the potential election of a popular candidate like Andy Burnham would likely improve market perception of the UK from an investment perspective.
“For the most part, Burham’s suggested policies are net neutral relative to what we are dealing with today. Of course, elements like the nationalisation of utility companies would be a negative for that sector, but the likelihood of something like this being actioned is another question.”
Charlotte Kennedy, Chartered Financial Planner at Rathbones, says: “A departing prime minister rarely changes your finances overnight, but political upheaval can create uncertainty that affects markets, confidence and expectations.
“While Andy Burnham appears to be in pole position to take the helm, whoever ultimately takes power will inherit the same difficult fiscal backdrop and quickly discover there are no easy wins. Sluggish growth, stretched public services and strained public finances mean difficult choices have been deferred, not avoided.
“The UK faces a challenging set of public finance constraints, with limited room for additional spending and persistent questions about how future commitments will be funded. Fears remain that spending cuts, tax rises, or a bitter cocktail of both could be required to pay for any flagship policies. At this stage, however, there is still so much we do not know.
“For markets, the identity of the next prime minister may matter less than the credibility of the policies they pursue. Investors, businesses and households will be looking for signs of how the government intends to balance growth ambitions with the realities of the public finances. The key questions are likely to centre on taxation, pensions, ISAs, public spending, inflation and the future path of interest rates.
“Until there is clarity from a new prime minister and chancellor, households, businesses and investors are left guessing about the direction of travel. The longer the wait for firm policy signals, the longer uncertainty is likely to hang over financial prospects.
“While our personal finances cannot be disentangled from what happens in Westminster, knee-jerk reactions based on speculation are likely to do more harm than good. History suggests that political drama often moves faster than economic reality. Policies can take months to emerge and years to have a meaningful effect on household finances, which is why reacting to every twist and turn in Westminster rarely proves a successful financial strategy.
“Whatever the direction of travel from the new administration, it remains good practice to make full use of tax-efficient wrappers such as ISAs and pensions, maintain a diversified investment strategy, and focus on the fundamentals that remain within our control. Governments come and go, but the principles of good financial planning remain remarkably constant.”
Wealth tax worry
Charlotte Kennedy, says: “A particular concern among many people we speak to is that a new Labour government could look to lean more heavily on taxes on wealth, property and capital. Our analysis suggests that as much as £100bn of wealth could either leave the UK or be redirected into less productive assets from a tax perspective if a levy on the wealthy were introduced.
“We have come across highly paid professionals who are considering relocating to more tax-efficient jurisdictions, or are actively reviewing their options. For some, the introduction of a wealth tax could prove to be the tipping point.”
Burnham-led government would likely shift policy leftwards
On the prospect of Andy Burnham as prime minister, John Wyn‑Evans, Head of Market Analysis at Rathbones, says: “Andy Burnham’s by-election victory removes a key political hurdle, but for investors the immediate takeaway is how little has changed. Markets tend to focus less on rhetoric and more on fiscal credibility, and so far the reaction has been notably muted.
“While a Burnham-led government would likely shift policy leftwards, there are clear constraints. The UK’s fiscal position remains tight, and recent experience has reinforced just how quickly bond markets can respond to perceived policy missteps. In that context, investors appear reassured by signs that Burnham is mindful of those constraints. Gilt yields and sterling have moved largely in line with global trends rather than reacting sharply to domestic politics, underlining the extent to which international factors continue to dominate market direction.
“For now, the bigger story is one of uncertainty rather than disruption. Until there is greater clarity on policy direction—particularly around taxation and spending—markets are likely to remain in a holding pattern.
“Amid the renewed bout of volatility in British politics, investors should resist the temptation to act on speculation. We’ve seen before that pre-emptive decisions based on political noise can be costly, and maintaining a long-term investment approach remains the most sensible course.”
Jason Borbora-Sheen, Income Portfolio Manager, Ninety One said:
“Given the exceptionally high likelihood of Prime Minister Keir Starmer’s resignation being priced into online polling markets over past few weeks, today’s news is not a surprise. The question now turns to whether there will be a leadership contest or if Andy Burnham will take the leadership uncontested. Beyond this, it is whether the fiscal credentials of a likely new chancellor and the PM are believed by the gilt market, which will be tested as their policy preferences become clear. Currently we prefer short-dated UK government bonds to longer-dated ones given the uncertainty and greater fiscal sensitivity of later maturities.“
Oliver Faizallah, Head of Fixed Income Research at Raymond James comments: “UK gilts have remained mostly unchanged following the resignation of Prime Minister Keir Starmer this morning. The lack of move comes as no surprise; the move was widely anticipated, with prediction markets assigning a near certainty of a leadership change last week.
“What is somewhat surprising is how quickly Starmer’s resignation came, and the following timeline for selecting a successor. As it stands, the long end of the gilt curve will likely remain a bit choppy as the market focuses on who will be the next prime minister. Andy Burnham is the front-runner and markets seem rather settled by that, especially following more recent rhetoric of being more fiscally responsible.
“Gilts will no doubt experience some small periods of uncertainty driven wobbles over the coming weeks. I anticipate this largely to be driven by foreign holders of gilts who will no-doubt find the new system of musical PMs somewhat unsettling. Ultimately, there is little surprise from this morning’s announcement, and while political uncertainty may move long end gilts a small amount, we expect more of a correlation to the evolution of ongoing peace talks between US and Iran, oil prices and inflation data.”
Laurence Booth, Global Head of Markets, CMC Markets, said: “The political implications of Keir Starmer’s departure are significant, but the market reaction has been notably muted. Investors appear more focused on the economic outlook than the prospect of a leadership transition, suggesting political uncertainty has yet to translate into a meaningful risk premium for UK assets.
“The reason is that markets remain preoccupied with inflation, interest rates and energy prices. Falling energy costs have improved the near-term outlook for growth and inflation, helping to offset some of the uncertainty created by developments in Westminster.
“The key question now is not who succeeds Starmer, but whether the next government materially alters the UK’s fiscal and economic trajectory. Until that becomes clearer, economic fundamentals are likely to remain the dominant driver of market sentiment.”
Chris Beauchamp, Chief Market Analyst UK at IG said: “While the UK now has to wait to see who fancies their chances in the leadership election, the strong possibility that Burnham is the sole candidate has boosted sterling back above $1.32. In addition, Starmer’s decision not to fight in any contest further reinforces the coronation narrative, as the party looks to unite behind a leader and get back to proving their worth to govern.”
