Sir Keir Starmer is currently making a speech in Downing Street, he is expected to step down as Labour leader, thereby clearing the way for a coronation of a new leader who would then also become the next UK Prime Minister. Marketwatchers are keeping a keen eye on developments in Downing Street, as well as on the peace talks between the US and Iran.
Susannah Streeter, Chief Investment Strategist, Wealth Club, said:
“The pound remains under pressure as political chop and change is back on the agenda in the UK. Prime Minister Sir Keir Starmer is widely tipped to step down, as challenger Andy Burnham appears to be securing deep support.
If the former Mayor of Manchester is given an easy path to Number 10, Britain will have had seven Prime Ministers in roughly a decade. This level of political churn is making investors increasingly nervous about the consistency of economic policy and the challenges ahead.
“The pound has dipped to levels not seen for almost three months, trading below $1.32, while government borrowing costs remain elevated. Although 10-year gilt yields have slipped below the hot levels seen during the most intense phase of the Iran conflict, they are still hovering around 4.84%, sharply higher than international peers.
Investing in UK assets continues to carry a risk premium given the bouts of political instability seen since Brexit, and there is little sign of that easing.
“There’s a distinct lack of direction for the FTSE 100 at the start of the week, and it hasn’t been helped by conflicting signals about a peace deal between the US and Iran. Brent crude had pushed higher as concerns resurfaced about the conflict flaring up again, given the ongoing tensions between Hezbollah and Israel.
However, there does appear to be further progress being made during talks in Switzerland towards a lasting settlement, and oil prices have dipped again. A statement from Qatar and Pakistan, which are leading negotiations in Switzerland, has indicated that the US and Iran have agreed to follow a roadmap towards peace.
However, it is clear there is still a long way to go, and more obstacles may emerge before a long-term deal is signed, sealed and delivered.
“For now, though, Brent crude has fallen back below $80 a barrel. Tankers are moving through the bottleneck of the Strait of Hormuz and, with key oil-producing nations across the Gulf going all out to boost output, the supply crunch is easing quickly, helping to calm inflationary worries.”
Chris Beauchamp, Chief Market Analyst at IG said:
“It has been coming for months, but today might finally see Starmer give up the ghost on his less than stellar premiership. For markets, the question is what will really change.
Does Burnham, who already has form on flip-flopping, have the strength of will to chart a more dynamic course than the drift exhibited by Starmer’s period in office? Something big is needed to arrest the slide towards Reform, but markets are not likely to be happy with some kind of free-spending approach given the UK’s dire financial state.”
