The FTSE 100 closed 0.7% lower on Monday, its steepest single-day decline in roughly two weeks, as investors digested the formation of Prime Minister Andy Burnham's new cabinet alongside rising UK bond yields and heightened geopolitical risks in the Middle East. The FTSE 250 slipped 0.3%, while the small-cap index edged down 0.2%.
Market sentiment remained cautious as the United States conducted its ninth consecutive day of strikes on Iran, and Iran-aligned Houthi forces in Yemen announced a naval blockade on Saudi Arabia. These developments added to concerns over regional stability and potential disruptions to global energy markets, weighing on risk appetite across European equities.
Burnham's Cabinet Takes Shape
Burnham moved quickly to assemble his government, blending experienced ministers from Sir Keir Starmer's administration with several longtime allies. John Healey returned to the cabinet as chancellor, less than two months after resigning as defence secretary over disagreements on defence spending. Healey now faces the challenge of closing an estimated £5 billion gap in the defence programme inherited from the previous government.
Ed Miliband was appointed foreign secretary after serving as energy secretary under Starmer. A former Labour leader, Miliband has been a vocal advocate for the UK's net-zero agenda and will now oversee the country's diplomatic efforts while continuing to support the green energy transition. Shabana Mahmood retained her role as home secretary, maintaining responsibility for immigration, national security, and policing. Louise Haigh, one of Burnham's closest allies, was named chancellor of the Duchy of Lancaster and first secretary of state, tasked with overseeing the new Number 10 North unit focused on devolution and regional economic development.
Fiscal Outlook and Bond Market Reaction
Investors are now closely watching the economic direction of the new government. The appointment of Healey as chancellor comes at a time when the UK faces tighter fiscal conditions, rising borrowing costs, and elevated geopolitical uncertainty. Long-dated UK government bond yields moved higher during Monday's session, with the 30-year gilt yield reaching its highest level in two months.
The market is assessing how the administration will balance spending commitments with a challenging fiscal backdrop. Burnham has pledged measures to ease pressure on households, but higher yields are already weighing on rate-sensitive sectors. For a deeper look at how devolution could impact growth, see our analysis: Andy Burnham's Devolution Plan: Can Regional Power Shift Revive UK Growth?
Rate-Sensitive Sectors Lead Declines
Homebuilders were the worst-performing sector in the FTSE 350, falling 3.5%, as rising bond yields pressured the housing market outlook. Utilities declined 1.4%, while pharmaceutical and biotechnology shares also weakened, with AstraZeneca dropping 1.7%. Banks lost 0.7%, and industrial metal miners fell 1.1% amid broad risk aversion.
Airline stocks came under additional pressure after Ryanair reported a 34% drop in quarterly profit, citing higher fuel costs and lower fares. Wizz Air declined 2.9%, while British Airways owner IAG and easyJet each slipped about 1.4%. For more on Ryanair's results, see: Ryanair Q1 Profit Plunges 34% as Lower Fares, Fuel Costs Bite.
Meanwhile, gold prices edged lower as rising yields offset safe-haven demand from Middle East tensions. For the latest on precious metals, read: Gold Edges Lower as Rising Yields Offset Iran Tensions, Oil Surge.
This article is for informational purposes only and does not constitute financial advice.
