Markets are entering a period of uncertainty following the announcement of the resignation of Sir Keir Starmer as UK Prime Minister and leader of the Labour Party.
Starmer resigned earlier today following increasing pressure for him to go from the party from MPs and Cabinet Ministers. Pressure has been mounting for months due to his involvement in the appointment of disgraced politician Peter Mandelson as US Ambassador, a disastrous defeat to Reform in UK local elections, culminating with the rise to prominence of now former Mayor of Manchester Andy Burnham, who was elected back into Westminster as MP for Wakefield last Thursday.
Burnham’s overwhelming victory against Reform in Wakefield has led to MPs calling for him to replace Starmer as both PM and Labour Party leader.
With Starmer’s resignation a new UK Prime Minister with a new leader – likely to be Burnham– is set to be in place by July 17 at the earliest, but most certainly by the time parliament returns in September, giving the UK its seventh leader in 10 years.
Market uncertainty is set to reign particularly given the lack of knowledge about Andy Burnham and his policies or who he may appoint to any new cabinet. While Burnham is not guaranteed to become the next UK PM, it is increasingly likely that he will be un-apposed with potential challenger Wes Streeting quickly throwing his support behind Westminster’s newest MP. While an announcement has not yet been made it is likely that UK chancellor Rachel Reeves will also be replaced soon.
Pound
Commentators are pointing to the fact that the pound has already fallen and gilt pressure is building, alongside the domestically focused FTSE 250 struggling.
Rathbones Asset Management’s David Coombs said that he was “cautiously optimistic” but the appoitnemtn Coombs pointed that the bond market will be reviewing Andy Burnham’s policy announcements extremely closely and will take notice of those who are part of his team, including expert advisers outside parliament.
“The identity of the chancellor will be key, obviously,” said Coombs.
“It is worth remembering that Andy Burnham was part of Tony Blair’s team and we probably need to take his recent statements which are more in keeping with a left-wing agenda in the context of trying to gain support from the unions and party members.
“At this stage I remain cautiously optimistic that Burnham will not repeat the sort of mistake former Prime Minister Liz Truss made, surprising the markets with a radical agenda.”
Susannah Streeter, Chief Investment Strategist, Wealth Club, said that investors will be looking for “stability, credibility and a clear long-term economic strategy” as Andy Burnham looks set to become Britain’s seventh Prime Minister in around a decade”
Upheaval
“[This is] a remarkable level of political upheaval for a developed economy. Combined with the lingering effects of Brexit, the revolving door at Number 10 has tarnished the UK’s reputation as a stable place to do business and made it harder to attract the long-term investment needed to drive stronger economic growth.
“His [Starmer’s] resignation has kicked off another round of speculation about the direction of policy ahead. The pound is languishing at multi-month lows, borrowing costs remain highly elevated, and the domestically focused FTSE 250 has sunk further into the red. While some uncertainty may be easing as Burnham’s path to Number 10 appears increasingly clear, he’s an unproven economic force and so uneasiness looks set to linger.
Streeter pointed that the economy is in desperate need of fresh investment to improve productivity, stimulate business activity and raise living standards. Targeted investment, particularly in infrastructure, innovation, skills and fast-growing companies, will be crucial if the UK is to break out of its sluggish growth cycle.
“Ultimately, Burnham’s challenge will be convincing investors that a more interventionist approach can sit alongside more discipline with spending and pro-growth policies. After years of political chop and change, investors are likely to place a premium on stability, credibility and a clear long-term economic strategy,” she concluded.
