The British pound weakened and gilt yields stayed elevated on Monday after UK Prime Minister Keir Starmer announced his resignation, ending a premiership of just under two years. While the move was widely expected, the confirmation pushed sterling below $1.32 for the first time in three months, with the currency down about 0.3% near $1.319, adding to a cumulative loss of around 3% since February. The 10-year gilt yield hovered around 4.85%, close to its highest since the 2008 financial crisis and above comparable G7 borrowing costs. Political uncertainty over fiscal direction and a potential leftward shift under Labour rival Andy Burnham drove the market reaction.
Pressure on Starmer had been building after Burnham, the former Greater Manchester mayor, returned to Westminster with a decisive election victory. Investors now fear that a Burnham-led government could loosen Chancellor Rachel Reeves’ tight fiscal framework, raising question over public spending and borrowing. “This level of political churn is making investors increasingly nervous about the consistency of economic policy,” said Susannah Streeter of Wealth Club. The options market signaled traders were paying more to hedge against pound volatility compared to Friday, suggesting expectations of further swings.
Despite the domestic political turmoil, the FTSE 100 index barely moved, trading around 10,358. Analysts noted that the blue-chip index’s heavy exposure to overseas revenues insulated it: a weaker pound flatters dollar-denominated earnings, while global risk sentiment was supported by progress in US-Iran negotiations over the Strait of Hormuz. However, the more domestically focused FTSE 250 remains more vulnerable to higher borrowing costs and weaker UK growth. The resignation solidifies a decade of political instability, with Britain now set for its seventh prime minister in ten years.
