UK Prime Minister Keir Starmer said he would resign on Monday, ending a premiership of just under two years and setting Britain on course for its seventh prime minister in a decade.
For markets, the announcement was not a bolt from the blue.
Pressure on Starmer had been building for months, and Andy Burnham’s return to Westminster had already pushed investors to price in a change at the top.
The sharper story was the split reaction: sterling weakened, gilts stayed under pressure, and the FTSE 100 barely moved.
A resignation markets half-expected, but still felt
Sterling slipped below $1.32 for the first time in three months as traders moved quickly to price the next phase of Labour’s leadership battle.
The pound was down about 0.3% near $1.319, while the UK 10-year gilt yield hovered around 4.85%, still close to post-2008 highs and above comparable G7 borrowing costs.
That combination says plenty. The resignation itself was widely expected, but confirmation crystallised the risk premium investors had been attaching to UK assets.
A change of prime minister means fresh questions over fiscal policy, public spending, and whether the next leader will stay inside Chancellor Rachel Reeves’s tight budget framework.
“This level of political churn is making investors increasingly nervous about the consistency of economic policy,” Susannah Streeter of Wealth Club said in a market note.
The FTSE 100 had already shed about 1% last week as investors braced for turbulence. On Monday, however, the blue-chip index was little changed around 10,358.
That calm should not be mistaken for confidence in Westminster. It reflects the unusual structure of Britain’s benchmark equity market.
Why the FTSE 100 is unmoved
The FTSE 100 is not a pure UK economy trade. Many of its 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 they are 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.
Sterling is reacting to political uncertainty. The FTSE is looking outward.
Andreas Lipkow, chief market analyst at CMC Markets, said 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 the near-term uncertainty in Westminster.
That distinction matters as if progress in US-Iran talks reduces fears over oil supply and inflation, it can support global equities even as UK politics becomes messier.
The domestically focused FTSE 250 was down 0.7% at 23044.09, underscoring its greater vulnerability to higher borrowing costs, weaker consumer demand and any slowdown in UK growth.
Technically, the FTSE 100 is also 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.
This post UK PM Keir Starmer’s resignation rattles sterling, gilts; FTSE shrugs off turmoil may be modified as updates unfold
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