Muted market reaction as UK pm Starmer resigns

An excerpt and link to our weekly market overview from Quilter Cheviot

By Richard Carter, Head of Fixed Interest Research

Market overview

Here we go again. News broke on Monday morning that UK prime minister Keir Starmer, has resigned from his role after just short of two years in the job. His successor, expected to be in place by September at the latest, will be the UK’s 7^th prime minister since the Brexit referendum in 2016

Andy Burnham is widely seen as the most likely candidate to lead the Labour Party, with his chances seemingly boosted further by the support of Wes Streeting on Monday morning — Streeting had been seen as a potential candidate himself. A key thing to watch will be whether there even is a leadership contest or whether it is considered so much of a one-horse race that everyone else steps aside for Burnham.  Should there be no leadership contest then the next leader could be in place in a matter of weeks, before parliament breaks for its summer recess

Last week, Burnham’s resounding victory in the Makerfield by-election seemingly made Starmer’s position untenable. The significant margin of victory was not just a strong endorsement of Burnham’s support to return to Westminster as an MP, but also the fact that in beating the Reform candidate, Rob Kenyon, so convincingly he displayed his credentials as the most likely person to prevent Reform winning the next general election.

Keir Starmer has performed particularly badly in opinion polls for some time now and, together with the disappointing Labour Party results in the May local elections there was an air of inevitability about recent events. There is a feeling that Burnham would be to the left of Starmer economically and therefore could potentially lead to a less fiscally disciplined approach.

Markets are wary of Burnham’s previous policy positions and, with difficult decisions around welfare and defence spending lingering, will be closely watching events unfold. Having said that, there is still a feeling that Burnham will not be radically different in terms of government borrowing, with bond investors gaining some reassurance from reported conversations between Burnham and the likes of Jim O’Neill, former Goldman Sachs chairman. Together, this explains the relatively muted market reaction to Starmer’s resignation in gilts, sterling and UK stocks.

That is not to say that potential risks have not increased, with the markets having grown accustomed to being relatively comfortable with current chancellor of the exchequer, Rachel Reeves, and her clearly communicated fiscal discipline. Along these lines, the next chancellor of the exchequer will be an important appointment for financial markets, with gilts especially sensitive to any unwanted shocks. Ed Miliband and Pat McFadden are the early frontrunners, according to the bookmakers…

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