Wealth managers discuss the investment impact of the potential resignation of UK Prime Minister Sir Keir Starmer, after nearly 90 Labour MPs called on him to step down and four ministers resigned.

With uncertainty soaring over the future of UK Prime Minister Keir Starmer (pictured), whose ruling Labour Party was mauled in local council elections last week, UK gilt yields rose sharply yesterday.

The 10-year gilt yield increased by a further 12 basis points (bps) to clear 5.10 per cent yesterday morning. The 30-year yield also rose 13 bps to hit a new 28-year high above 5.8 per cent. Such rises, if sustained, would feed through into higher borrowing costs, driving up mortgage bills. 

As of the time of writing, Starmer was reportedly vowing to stay in office. Candidates to replace Starmer include health secretary Wes Streeting as well as Angela Rayner, the former deputy Prime Minister. Another front-runner for the spot is Andy Burnham, mayor of Greater Manchester. However, he is not an MP so he would need a by-election to return to Parliament. Streeting is expected to meet with the Prime Minister this morning.

A possible change at the top comes almost two years after Starmer, a former top UK legal official, led the left-leaning party to a massive majority in the Commons in the UK general election, ending 14 years of Conservative Party rule (the first five of which were in a coalition with the Liberal Democrats.) Starmer had promised an end to Conservative upheavals – since 2010, that party had five PMs: David Cameron, Theresa May, Boris Johnson, Liz Truss and Rishi Sunak. If Labour were to ditch Starmer, the fear would be that the pattern would spread. 

UK politics is in flux: the insurgent Reform UK Party, led by Nigel Farage, is ahead in polling as having the largest support, ahead of the Conservatives, Labour, the Liberal Democrats and Green Party. A fear is that under the country's "first-past-the-post" system, a fragmented support pattern could lead to no party having an overall Commons majority, leading to coalitions and electoral pacts. Such uncertainties are weighing on investors' minds. Another fear is that a new Labour leader and premier might be tempted to tack further to the Left, raising spending, borrowing and taxes, hurting business and adding to a "doom loop" of weak growth, rising debt and tax.

Here are some reactions from investment managers to the news.

Kenny MacAulay, CEO of accounting software platform Acting Office
"With borrowing costs surging, businesses are losing patience with a government that cannot decide on whether the Prime Minister will be in post by tomorrow morning. So far, it's been all bark and no bite, and struggling employers will once again feel that political fallouts are derailing their ability to trade effectively. Stay or go, it's time for some clarity. Especially with elevated interest rates and the Iran war in the mix."

Neil Wilson, UK investor strategist at Saxo
Sterling is under pressure and gilt yields leapt sharply as Prime Minister Keir Starmer faces mounting pressure to resign. It now appears inevitable that the PM will step down either now, or set a timetable to do so in the coming months. This is a dynamic situation but it looks as though this morning's cabinet meeting could be the end and we are expecting volatility in gilts and sterling to continue. We could see a blowout in longer-dated gilts if this turns into a dogfight – political, fiscal and inflationary risks will rise. Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending; and that this makes inflation stickier. Yesterday, gilt yields continued to tick up as the afternoon wore on as the number of MPs calling on Prime Minister Keir Starmer to quit climbed above the 50 mark. Stalking horse Catherine West blinked and said she won’t trigger a leadership contest immediately, but a couple of cabinet ministers cracked, and the momentum seems to be with the rebellion."

Daniel Casali, chief investment strategist at UK wealth manager Evelyn Partners
“Fortunately, our portfolios are not solely exposed to domestic conditions. The rally in US technology and artificial intelligence stocks continues to lift global equities, and the UK stock market with it. Around 80 per cent of revenues from large UK listed companies are generated overseas, leaving them relatively insulated from domestic political and economic developments. Maintaining diversified portfolios across geographies, sectors and asset classes remains essential. UK-listed companies with substantial international revenues are generally better placed to navigate domestic weakness. In fixed income, keeping gilt duration short looks prudent.”

Richard Carter, head of fixed interest research at Quilter Cheviot
“The gilt sell-off is a clear signal that markets are becoming less tolerant of political uncertainty at a time when borrowing costs are already uncomfortably high. With 10-year yields spiking above 5 per cent, investors are pricing in a higher risk premium as speculation around Keir Starmer’s leadership and the possibility of a shift towards a looser fiscal stance unsettle confidence in the UK’s policy framework. For consumers, higher gilt yields tend to feed through fairly quickly into the real economy. Mortgage rates are closely linked to government bond yields, so sustained pressure at these levels increases the risk that fixed-rate mortgage pricing stays higher for longer, complicating refinancing for households already stretched by the cost of living. It also raises the hurdle for any meaningful fall in borrowing costs later this year, even if inflation continues to ease.

“For investors, the message is more nuanced, on the one hand, higher yields improve the income available from gilts and other high-quality bonds, which will appeal to long-term investors able to look through short-term volatility. On the other, the speed of the move reflects concern that fiscal credibility could be tested, particularly if proposals associated with Angela Rayner are seen as incompatible with existing fiscal rules. In that environment, bond markets can remain jumpy, and further political missteps risk pushing yields higher still.

“Equity investors are also watching closely as rising gilt yields lift the discount rate applied to future earnings, which can weigh on UK equities, particularly more highly valued or domestically exposed companies. At the same time, higher government borrowing costs leave less room for policy manoeuvre, limiting the scope for stimulus if growth weakens. Overall, the spike underlines that whoever leads the government next will inherit very tight constraints. Markets are not passing judgement on ideology so much as arithmetic. With debt levels high and global risks already elevated, investors are looking for clarity, discipline and continuity. Without that, the bond market is likely to keep applying pressure, with consequences that are felt well beyond the gilt market itself.”

Daniela Hathorn, senior market analyst, Capital.com
“The sharp rise in UK yields reflects more than just global pressures from the Iran conflict and higher energy prices. Those factors are lifting yields everywhere, but the UK is being hit harder because investors are now pricing in policy uncertainty on top of inflation risk. The prospect of leadership instability and potentially looser fiscal policy raises concerns about debt sustainability and increased issuance, which pushes borrowing costs higher. The market reaction across assets reinforces that narrative. The sell-off in gilts, weakness in sterling and declines in UK equities point to a repricing of UK-specific risk. Banks are especially sensitive given fears of higher taxation under a new administration, while the broader equity market is being weighed down by the combination of higher discount rates and political uncertainty.

“What’s notable is the relative underperformance. While yields globally have risen due to the energy shock, the UK’s move suggests it is being treated as more vulnerable than its peers. That’s consistent with its status as a net energy importer, combined with already stretched public finances and weaker growth dynamics compared with the US. From a broader market perspective, this matters because it highlights how quickly confidence can shift from global themes to country-specific risk. If political uncertainty persists, UK assets could continue to underperform, with higher yields feeding into tighter financial conditions, weaker currency dynamics and pressure on domestic-facing equities.”