UK Prime Minister Keir Starmer confirmed his resignation on Monday, ending a premiership of under two years and triggering a fresh bout of political uncertainty in British markets. The pound slipped to a three-month low, gilt yields stayed elevated, but the FTSE 100 remained largely unmoved, reflecting the index's heavy reliance on overseas earnings.
Sterling and Gilts Under Pressure
Sterling dropped below $1.32 for the first time in three months, trading near $1.319, down about 0.3% on the day. The UK 10-year gilt yield hovered around 4.85%, close to post-2008 highs and above comparable G7 borrowing costs. The move crystallized a risk premium that investors had been pricing in for weeks, as pressure on Starmer mounted and Andy Burnham's return to Westminster shifted leadership odds.
“This level of political churn is making investors increasingly nervous about the consistency of economic policy,” said Susannah Streeter of Wealth Club in a market note. The resignation raises fresh questions about fiscal policy, public spending, and whether the next leader will adhere to Chancellor Rachel Reeves’s tight budget framework.
For more on the leadership transition, see our analysis: UK Leadership Shift: Burnham's Fiscal Plans and Chancellor Pick in Focus as Starmer Steps Down.
FTSE 100 Shrugs Off Domestic Turmoil
The FTSE 100 was little changed around 10,358 on Monday, after shedding about 1% last week as investors braced for turbulence. The calm should not be mistaken for confidence in Westminster. It reflects the unusual structure of Britain’s benchmark equity market, where many of the largest companies earn most of their revenue overseas—particularly in energy, mining, pharmaceuticals, consumer goods, and financial services.
A weaker pound can even flatter those dollar-denominated earnings when translated back into sterling. That explains why UK equities are not reacting like gilts or the pound. The bond market is focused on domestic fiscal credibility, while sterling is reacting to political uncertainty. The FTSE is looking outward.
Andreas Lipkow, chief market analyst at CMC Markets, noted that investors were “continuing to place greater weight on developments in US-Iran negotiations than on domestic political noise,” according to Investing.com. He added that markets remained more focused on energy prices and global risk sentiment than near-term uncertainty in Westminster.
For context on how global factors are influencing UK markets, read: Sterling Reclaims Pre-Conflict Level at $1.3548 as US-Iran Dialogue Eases Risk Sentiment.
FTSE 250 Feels the Domestic Drag
The FTSE 250, with more domestic exposure, was down 0.7% at 23,044.09, making it more vulnerable to higher borrowing costs, weaker consumer demand, and any slowdown in UK growth. The divergence between the two indices underscores the market’s bifurcated response to political upheaval.
Technically, the FTSE 100 is range-bound rather than distressed. Analysts at AskTraders have flagged the 10,570 area as a key level that would need to break before the index could regain upward momentum. Political uncertainty may not be enough to trigger a sell-off, but it is still keeping a lid on risk appetite.
For a broader view of how political turmoil has weighed on London markets, see: FTSE 100 Drops 0.7% as Hawkish Rate Bets and Political Turmoil Weigh on London Markets.
This article is for informational purposes only and does not constitute financial advice.
