UK: Political Uncertainty Here to Stay, What Does This Mean for Markets? (1/2)

We see the political machinations in the UK over the past few weeks as becoming much more well-priced. While yesterday’s resilience from Starmer is unlikely to reverse the tide of his premiership (Polymarket odds are against Starmer retaining office beyond the end of June – reaching 70% this week), it does mean the fiscal and political approach of the UK is likely to shift to the left in the second half of this parliament, regardless of who leads the party.

• This likely means a re-correlation between UK bond and currency prices, and a change in leadership (whether it’s Rayner, Streeting or, slightly less likely, Burnham) will introduce fiscal uncertainty – playing into the broader views of structural uncertainty for GBP (see more here: https://www.mnimarkets.com/articles/currency-strength-is-latest-sign-that-leftward-shift-is-well-priced-1770642155124 ).
• What’s slipped out of market focus is the possibility that Starmer not only survives both by-election and May local election risks, but throughout the rest of the year. While a swift recovery in his public popularity from current low levels is unlikely – there is a tangible sequence of events where lasts into 2027 – and beyond:
• A narrow Labour hold in Gorton and Denton, expectations management in May (“could have been worse”), no path to becoming an MP for Burnham, a false start for Streeting’s leadership bid (his ties to Mandelson and right-of-Starmer policies) and sufficient market volatility that could scare MPs off any Rayner attempt to become leader.