Key Takeaways
- Departure of Angela Rayner accompanied by broader cabinet reshuffle.
- Development comes as prime minister and chancellor weather week of bond market turmoil.
- Politically-sensitive housing and banking stocks now in the spotlight.
The resignation of Angela Rayner on Friday as UK deputy prime minister and housing secretary caps an eventful week in UK politics, which saw long-term government bond yields spike to a 27-year high.
It temporarily brings an end to a week of peril for the prime minister, Keir Starmer, in which it looked like both his deputy and chancellor would have to resign.
Market reaction to Rayner’s exit on Friday was muted, but sterling gained against the dollar and gilt yields continued to soften after hitting highs this week. UK stocks made modest gains on Friday afternoon as the trading week drew to a close.
Earlier in the week, Chancellor Rachel Reeves came under sustained pressure as investors sold off UK government debt, sending gilt yields soaring and the pound falling. Speculation increased that she would also be on the way out, but the confirmation of the Autumn Budget date for Nov. 26 appeared to buy the chancellor some time.
Savers, investors and homeowners still expect a raft of tax increases in November as the chancellor attempts to balance the books: an increase to income tax, breaking a manifesto promise, has not been ruled out.
Michael Field, Morningstar chief European market strategist, says Rayner’s resignation now puts Rachel Reeves under “significantly more pressure to deliver on the Budget.”
“Yields are definitely too high now and should cause concern already. But the government has time to piece together a solution for the Budget that could help, and the [state of the] economy doesn’t warrant such high yields.”
Rayner’s resignation comes at an exceptionally tricky time for the prime minister. He has already faced at least two showdowns with the bond markets in 2025 alone, the second of which this week saw yields rise above those seen during the Liz Truss “mini-Budget” fiasco. Having been in office for just over a year, Starmer had planned to use this week to signal the start of a new phase of his government, with a focus on delivering promised policies. Long-term gilt yields remain elevated despite a downturn at the end of the week.
UK Political Changes Ahead
At one point this week, it looked possible the prime minister could lose both his deputy and chancellor. But the chancellor, who clung on this week despite significant pressure from the markets and political commentators to resign, remains in post—for now.
However, that Starmer has already poached Rachel Reeves’ number two, Darren Jones, into 10 Downing Street in a new role was seen as the prime minister wresting control of the economic agenda from the Treasury ahead of the Budget.
Bookmakers have cut odds on the next chancellor, with Pat McFadden as the likely candidate to replace Reeves.
Apart from calming the debt markets and delivering a fiscally-sound budget in the near term, the prime minister’s biggest long-term economic headache is growth. The UK is enduring a growth slowdown, latest figures suggest, with GDP growth in the second quarter of this year down to 0.3% from 0.7% in Q1.
This comes amid disruption caused by US tariffs on global economies and the uncertainty over trade deals seen in the first half of 2025 around the world. For its part, the UK negotiated a supposedly “preferential” trade deal with Donald Trump’s administration, but much is uncertain. Whether this change of key ministers across Whitehall will be accompanied with significant changes in the government’s growth strategy remains to be seen.
What Could the Reshuffle Mean For Politically-Sensitive Stocks?
Rayner’s departure means that the position of housing secretary will need to be filled. She had previously campaigned for accelerated housebuilding and a loosening of planning restrictions.
Investors are also expecting a new chief secretary at the Treasury, a role that includes all UK public spending in its brief. There could also be potential changes at the Department For Business, Energy & Industrial Strategy.
Crucially, a significant policy change at the top of the UK housing ministry inevitably affects the UK’s housing stocks. The government made affordable housing a key election issue, pledging to build 1.5 million homes a year, a promise that caused a short-lived bounce in construction companies’ stock prices when it was announced in July last year.
“Labour has already committed to increasing the UK’s housing stock, so likely more supportive policies around areas like these will be forthcoming, but whether purse strings will be loosened to back these up is another question,” says Morningstar’s Field.
The Bank of England base rate has fallen to 4% since that original pledge, supposedly supporting cheaper mortgage rates. But the housing market has also slowed as stamp duty and feared changes to the tax regime governing house purchases have put off buyers and sellers. This has driven housebuilding stocks lower in the second half of 2025. However, despite this negative backdrop, Morningstar analysts still expect housing stocks to recover, albeit gradually.
“The UK’s housing market is in the early stages of a cyclical recovery, following a perfect storm of headwinds in 2022 and 2023,” says Morningstar equity analyst Jack Fletcher-Price in a note following Persimmon’s PSN results on Aug. 13.
“We forecast a recovery in volumes, and gross and operating margins from cyclical lows in 2024 over the coming decade. We think the coming cycle will be less fruitful for the peer group than the last, given the government’s desire to increase competition in the sector to fuel volume growth and new building regulations weighing on margins.
“We acknowledge that affordability remains stretched in many parts of the UK and uncertainty persists in the near term, and as such, we model a gradual recovery.”
No New Chancellor, But UK Financial Services Watching Closely
In the lead up to last year’s general election, the Labour Party—then in opposition—made significant efforts to win over the UK’s business and finance sectors, themselves deemed crucial to the country’s success. Tax increases at the 2024 Autumn Budget have cooled the relationship between government and UK Plc since, so the news that Rachel Reeves will stay in post may be greeted with mixed feelings by the business community—and in particular the UK’s banks, which are now expecting a levy imposed at the Autumn Budget.
Despite market volatility, the UK’s biggest banks by market capitalization have had a very good year, with Lloyds Banking Group LLOY, Barclays BARC, and HSBC HSBA, posting year to date gains of 24.96%, 37.62%, and 46.04%.
The next Bank of England announcement on interest rates due Sept. 18 will be outside Whitehall’s purview, but the precise nature of the Monetary Policy Committee’s voting pattern and accompanying data will tell financial services firms much about the challenges facing the UK economy. Banks, which provide billions of pounds’ worth of mortgage and business lending into the economy, will be watching Keir Starmer and Rachel Reeves’ next moves very carefully.
