Key Takeaways
- The UK could be in the verge of having its seventh prime minister in seven years.
- Bond yields have soared on fears that Keir Starmer’s replacement would shred the UK’s “non-negotiable” fiscal rules and hike taxes.
- One Labour MP says bond markets will have to “fall in line” with the government’s plans.
Ollie Smith: This week, the King attended the state opening of parliament. It’s an extraordinary event that delivers all the usual pomp and ceremony you would expect of a sacred British political tradition. It was, however, extraordinary for all the wrong reasons. As the King spoke, Keir Starmer was fighting for his political life.
When Starmer took office, he did so on a platform of change: change to improve the UK’s economic performance. Change to better domestic living standards. Change to standards in public life. Change to the tone and pace of events.
History will judge how he did on the first three, but one stat lays bare precisely how badly he has failed on the fourth. As Labour rebels circle, the UK appears to be on the cusp of getting its seventh prime minister in 10 years. This time a decade ago, David Cameron was in Number 10, arguing as passionately as he could that voters in the UK’s referendum on membership of the European Union should vote to remain. And he failed too. Whichever way you voted in that referendum, the decade that followed has been dramatic, dark, and destabilizing.
The Labour Party’s Succession Battle: Why Investors Are Paying Attention
Markets reflect this new “permacrisis” reality—both domestically and internationally. This week, UK bond yields rose once more as concerns that a Starmer successor would rip up the supposedly “non-negotiable” fiscal rules established by the prime minister and his chancellor—the first woman chancellor in UK history—when they took office back in 2024.
This time things felt different, though. Rachel Reeves has been so very careful to court the approval of investors in UK PLC, be it on the bond or stock markets. So too have plenty, if not nearly all, of her predecessors in living memory. Now it appears the gloves are off, with one Labour MP openly saying that bond markets will have to “fall in line” if a centre-left administration takes the reins. Politics is leading the markets and not the other way around. How will the foreign investors who buy UK government debt receive this? Talk of a debt crisis and 1970s-style IMF bailout have returned.
Will an Emergency UK Budget Follow a Change in Leadership?
If previous political emergencies are to go by, there will be at least one rewriting of the government’s finances, and a political reshuffle that reflects what many suspect will be a successor regime of a decidedly more leftwards disposition. Tax rises are on the cards, as are significant alterations to the fiscal policies and personal finance frameworks we know and love. How many more tax rises can the electorate take before they’ve had enough? Well, whatever the result, the next general election feels a long way away. Could we be in for a great deal more change before then? It looks very, very likely.
For Morningstar, I’m Ollie Smith.
