Fundhouse Insights - PM’s Resignation and Potential Implications
This article has been prepared by Fundhouse and is reproduced by LifeMap Financial Planning for general information. It reflects Fundhouse's views as at the date of publication and those views may change. It does not take account of your individual circumstances and should not be treated as personal financial advice or a personal recommendation.
Headlines. This morning, Sir Keir Starmer announced outside Downing Street that he will step down as Prime Minister, drawing a line under weeks of speculation. He remains in post while the Labour Party runs a leadership contest into July/August; Greater Manchester Mayor and newly minted MP Andy Burnham is the firm favourite to succeed him (with bookmaker odds generally implying >90% probability, helped by Wes Streeting’s decision not to stand in any contest). This morning represents another milestone in an extended period of relative political instability (Starmer is Britain’s seventh prime minister in a decade), but the more telling story is how little markets have moved, and how little impact we believe this will have on your investments.
‘Priced-in’. This resignation did not come as a surprise. Pressure had been building for weeks, and asset prices had adjusted to the prospect before today’s confirmation. This morning, the 10-year gilt yield (i.e. the interest you earn from holding a UK government bond) ticked very slightly higher to 4.85%. Sterling barely moved, having already softened over recent months to $1.32. The FTSE 100 barely registered the news. In this well-anticipated event, the market had already ‘priced-in’ the outcome.
Monetary policy stability. It is worth remembering who actually manages the policies that matter most to your bonds and cash: the Bank of England. Its leadership remains unchanged, with Governor Andrew Bailey’s term running to 2028. The Bank has been gradually lowering interest rates down to 3.75% now, down from 4.75% in late 2024, as inflation drifts back towards its 2% target. A new face at No. 10 does not change that.
Global issues matter more than PM change. As we noted in 2022, following the resignation of Liz Truss and the third PM in the same number of months, the factors that drive markets have very little to do with UK equity market returns. Instead, the forces that will be most significant to many clients’ portfolios will be global in nature. As we have been writing about in recent months, the events that genuinely move portfolios tend to originate from outside the UK: the stretched valuations of US technology giants, the global path of interest rates (usually led by the US), and geopolitics (not least the Iran conflict and its knock-on effect on oil and inflation). A domestic leadership contest has little impact on these. UK gilts have in fact lately moved more on the back of global oil prices than from this leadership struggle, and the largest UK stocks are far more sensitive to global energy and resource prices than they are to Labour party infighting. More broadly, there is no clear correlation between which party is in power and UK Equity market returns:
Next steps. Some market commentators have been wary of Burnham’s left-leaning instincts, and the impact that they might have on public borrowing and higher debt levels. Others have recognised a more pragmatic attitude – he has recently re-emphasised his commitment to stick to government fiscal rules and has brought in some very ‘establishment’ economic advisors. The behaviour of markets today, however, are telling us that massive changes are not expected.
Our outlook. We remain committed to our investment process – in the face of political or economic speculation, we remain calm – with the belief that it is unwise to try to predict and act upon these outcomes. Instead, our portfolios remain well-diversified, long-term and tilted to those areas where we see substantial valuation opportunities; this includes the UK, but it is based on prices and value rather than political and economic speculation.
Disclaimer: Markets and headlines are moving quickly, and the figures quoted here will move as new developments emerge. Fundhouse is the trading name of Fundhouse Bespoke Limited. Fundhouse provides investment management services and does not provide financial advice. Importantly, this note does not represent investment advice and any reader should always speak to their financial adviser before making any investment decisions. Please note that the value of any investment may go down as well as up and you may lose capital when investing and the value of your investments may not always increase. Please ensure that you are comfortable bearing financial losses and that you are comfortable taking a long-term investment view of five years or more.
