Keir Starmer resigns: implications for investors

Prime Minister Keir Starmer today announced his resignation, with Andy Burnham confirming he will stand to replace him. Starmer has said he will remain as PM until the Labour party chooses a new leader, which he said will happen before “parliament returns in September” or potentially sooner.

At the time of writing, the leadership contest appears over before it has begun. The former Health Secretary Wes Streeting has quickly rallied behind Burnham, and while there is no official deal, he has suddenly become a heavy favourite on Polymarket as potential Chancellor.[1]

This is the most important cabinet appointment for markets, but the extent of autonomy from the likely new PM is not known. Alongside Reeves, Streeting, Ed Miliband and Yvette Cooper are seen as potential candidates, with Streeting and Cooper viewed as more supportive for the gilt market.

How has the market reacted?

Starmer’s potential resignation has been widely anticipated, with both financial and betting markets pricing it in for some time. As a result, the market reaction on Monday morning has been relatively muted, with UK gilts making no noteworthy moves.

That said, UK gilts underperformed on Friday after Burnham’s by-election win in Makerfield, with the 10-year gilt yield rising by around nine basis points from Thursday’s close. The move was likely amplified by thinner liquidity during the US Juneteenth holiday.

What are the economic implications?

Burnham has already pledged to stick to the fiscal rules, maintain the manifesto promise to not increase income tax, national insurance or VAT and keep the pensions triple lock. Some of Burnham’s economic advisers have suggested there is still room for tweaks to the fiscal rules, such as lengthening the time horizon for debt reduction or changing the metric to include assets to allow more borrowing for investments that increase national wealth in the long term.

While perhaps sensible in principle, the danger is the gilt market does not trust the government to invest wisely, and so any attempt to create more fiscal space for long-term investment backfires with higher interest rates.

As things stand, there is little visibility on Burnham’s policy priorities, and this may yet lead a number of Labour MPs to at least test some of the ideas through a leadership contest. For now, we are left with speculation in the following areas:

1. Partial reversal of some of the unpopular measures recently taken on national insurance and inheritance tax.
2. Cuts to business rates, especially to pubs, music venues and small high street shops.
3. Welfare reform to fund increase defence spending.
4. Bringing utilities under greater public control.
5. European reset.
6. More devolution.

However, without breaking one of his earlier pledges, Burnham will likely find very limited fiscal space to make progress in many of these areas.

Our global unconstrained positioning

Our unconstrained bond team has been adding sterling credit risk on gilt weakness in recent months, most notably through a mid-May trade that increased exposure to long-dated GBP credit at the peak of the gilt sell-off ahead of the local elections. These positions were among the top contributors to performance over the month.

The team remains constructive on sterling credit risk, particularly at the front end of the curve given attractive carry and are likely to add exposure if gilt yields rise further.

From a sectoral perspective, the UK water sector is back in the spotlight given the increased risk of nationalisation under Burnham, if he becomes leader. The team has been trimming exposure to UK water names in some portfolios, and is working closely with the credit research team to understand the risks surrounding other exposures.

UK rates outlook

From a rates perspective, our rates specialist team is focused on the potential return of UK inflation fears in markets. If these fears build, they will likely look to sell more long-dated UK inflation.

Provided all prime ministerial candidates remain committed to Bank of England independence, the premium currently priced above the inflation target remains attractive, in our view.

How much does this matter for LDI investors?

Larger collateral buffers and improved levels of governance mean that LDI investors can maintain a strategic focus through political and wider macro headlines.

As we stated in last month’s blog, LDI investors are typically most focused on real yields given inflation-linkage in their liabilities. Longer dated real yields remain below May’s highs, with the market reaction to today’s news largely anticipated and priced in.

Ongoing revisiting of collateral waterfalls remains relevant and some investors may still wish to consider whether this is an opportunity for any incremental hedging increase.

 
[1] Source: Polymarket as of 22 June 2026.