Keir Starmer resigned as prime minister and Labour leader this morning, triggering a leadership transition that analysts said will do little to resolve the underlying pressures on UK assets.
Andy Burnham, who won the Makerfield by-election last week, is expected to succeed Starmer, although there are questions as to whether it will be through a full leadership contest or if the former mayor of Manchester will win without competition.
Either way, when the next prime minister is confirmed, Britain will have had seven in roughly a decade – a level of political churn that is weighing on investor confidence, according to Susannah Streeter, chief investment strategist at Wealth Club.
The pound has been volatile, while 10-year gilt yields are hovering around 4.84%, sharply above those of international peers, despite slipping below the peaks reached during the most intense phase of the Iran conflict.
“Investing in UK assets continues to carry a risk premium given the bouts of political instability seen since Brexit, and there is little sign of that easing,” Streeter said.
Richard Carter, head of fixed interest research at Quilter Cheviot, said markets would prefer a proper leadership contest over an uncontested handover.
“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,” he said. “There are difficult decisions around welfare and defence spending lurking, with each likely to have an impact on gilts and wider UK markets.”
Exactly what Burnham would do in Downing Street remains vague, but last week experts looked at the signs on Trustnet.
Whoever the new prime minister might be, public borrowing figures underline the scale of what awaits them, said Carter. Without a fresh mandate, he expects more tinkering with personal taxation rather than any structural fix – a prospect he said would weigh on growth.
Charlotte Kennedy, chartered financial planner at Rathbones, said a new prime minister would change investors’ finances very little immediately.
However, “political upheaval can create uncertainty that affects markets, confidence and expectations,” she said. “Whoever ultimately takes power will inherit the same difficult fiscal backdrop and quickly discover there are no easy wins.”
Kennedy said concerns about a potential wealth tax have already begun to affect behaviour among high earners. Rathbones' analysis suggests as much as £100bn of wealth could leave the UK or be redirected into less productive assets if such a levy were introduced, with some professionals already reviewing options to relocate to more tax-efficient jurisdictions.
John Wyn Evans, head of market analysis at Rathbones, said the initial market reaction had been muted. Gilt yields and sterling have moved broadly in line with global trends rather than responding sharply to domestic politics, a sign that investors are focused on fiscal credibility rather than political identity.
“While a Burnham-led government would likely shift policy leftwards, there are clear constraints,” he said. “The UK's fiscal position remains tight and recent experience has reinforced just how quickly bond markets can respond to perceived policy missteps.”
Both Rathbones analysts cautioned against reacting to the political noise. “We've seen before that pre-emptive decisions based on political noise can be costly,” Wyn Evans said.