The shifting fortunes of UK politics sees the departure of yet another Prime Minister. Just as Boris Johnson was ousted in 2022, despite his Conservative Party having won a large majority in late 2019, Sir Keir Starmer suffered a similar fate, even though his Labour Party won a crushing majority in 2024.

Sterling slipped and UK government bond yields inched higher on concerns that a new prime minister – mostly likely the newly-elected MP Andy Burnham – could boost public spending in a bid to restore the ruling Labour Party’s fortunes, although his fiscal room to do so appears limited in the short-run.

Sir Keir Starmer, who led Labour to a 174-seat majority in July 2024, defeating the Conservatives, fell victim to the same internal political conflicts that had caused the Conservatives problems during their previous 14 years in office. Burnham, assuming he becomes prime minister by the start of September, will be the seventh occupant of Downing Street since David Cameron 10 years ago.

The changes of prime minister since David Cameron’s resignation following the Brexit referendum result in 2016 have dented the UK’s reputation for relative political stability, also reflecting the fracturing traditional political allegiances and the rise of populism. Labour's 2024 victory in the general election was a "loveless landslide," profiting from anti-Conservative voting across the country, and the vagaries of the UK's first-past-the-post electoral system. Reform, a populist Rightwing party, has won support from former Labour as well as Conservative voters, particularly on issues such as immigration and Net Zero energy policy. 

Yesterday morning, after Starmer announced his resignation, 10-year gilt yields rose about 10 basis points to above 5.10 per cent; the 30-year yield also rose, by 13 bps to above 5.8 per cent. Saxo UK investor strategist, Neil Wilson, said further rises are likely. 

“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 makes inflation stickier,” Wilson said. On the currency front, sterling was under pressure against the dollar, fetching around $1.3540, and could move to $1.3.

Judging by early reactions, wealth managers regard the least-worst outcome as an orderly transition, with Burnham entering Downing Street by September. A political question is how voters, contemplating yet another PM, will view this outcome.

With his criticisms of “neoliberal” market economics, comments on reindustrialisation and other points, Burnham comes with an interventionist message that in some ways fits with the populist backlash against globalisation that, for example, has an echo other countries, including the US. He is a former minister in the era of Tony Blair and Gordon Brown, holding a mix of roles, including Chief Secretary to the Treasury. He resigned his latest position as Manchester mayor – a city which he is credited for helping to boost during his tenure – to contest a seat in parliament so that he could have a chance to run against Starmer. Burnham won the Makerfield by-election in the UK northwest last week by a comfortable margin. 

Starmer, a former Director of Public Prosecutions, has seen his political fortunes nosedive since 2024. Labour lost more than 1,000 seats in local council elections during May – an outcome seen as the beginning of the end of his time in office. 

A question for wealth managers is how this will affect the UK economy and financial market. The UK economy is growing slowly; unemployment is rising and, like other countries, has been hit by the aftermath of the pandemic and rising oil prices. But the country isn’t in recession, and its troubles are similar to those of many of its neighbours.

Burnham is said to favour policies such as reducing business rates, bringing in a land value tax, hiking capital gains taxes so that they match income tax rates, and further squeeze on exemptions from inheritance tax. He faces the risk of being seen as imprudent – reports say he is, at least for now, sticking to government borrowing plans. 

“Keir Starmer’s resignation means we are facing another period of political uncertainty. We do not yet know who the next Prime Minister will be, or what tax policies they will choose to prioritise. That makes short-term planning more difficult for people making large financial decisions, particularly those selling assets, restructuring investments, transferring wealth, or going through major life events,” Daniel Swift, head of financial planning, TrinityBridge, said. 

“One area to watch closely is capital gains tax. The idea of aligning CGT rates more closely with income tax has been discussed before, and any move in that direction would have clear implications for wealth planning. It would affect the after-tax return from selling assets and could change the timing of disposals,” Swift said.

“For anyone already planning to sell assets, this uncertainty will affect decision-making. Some may look again at timing, especially if they believe CGT rates could rise under a new leader. Others may decide that acting too quickly creates its own risks, particularly when policy details remain unclear. Reports suggesting that a new leader could be in place by 1 September still leave a meaningful gap. For households, business owners and advisors, that is a long period to operate without clarity if major decisions are already underway,” he continued. 

Martin Wolburg, senior economist at Generali Investments, said: “On policy, Burnham points to a more interventionist and more regionally-focused model of government, with greater emphasis on devolution, cost-of-living relief, industrial renewal and stronger public control in areas such as housing, transport and utilities. Even so, fiscal constraints remain tight, and his pledge to respect Labour’s fiscal rules suggests that, for markets, the key question is likely to be implementation rather than ideology.

 Phineas Hirsch, partner at Payne Hicks Beach, said Burnham is likely to drive towards a “fairness-first, regionally redistributive tax agenda; not radically new taxes overnight, but a stronger push on closing reliefs and tightening wealth taxation.”

“I suspect we are likely to see continued pressure to raise revenue from wealth rather than income, meaning HNWIs should prepare for renewed scrutiny on capital gains, inheritance tax reliefs, and potentially the introduction of a wealth tax, despite such taxes proving unsuccessful in other leading economies,” he said. 

“Burnham is somewhat of an unknown quantity at this level of government, but a continued drive for ‘fairness’ risks coming at the cost of economic growth,” Hirsch added.

(Editor's comment: Investors seem to be relatively calm about the news, which was not unexpected, but still a jolt when one considers how many occupants of 10 Downing Street there have been since 2016. It is not clear what a Burnham premiership means – with someone such as Wes Streeting (former health minister) as finance minister, perhaps. Burnham, who was a minister under Tony Blair and Gordon Brown, is seen as a man of the Left, albeit with a supposedly "comman man" touch and a record of having led Manchester to relative success as a major UK city. He's made a point about taking certain utilities back into public ownership, building more homes and encouraging industry. How much such ideas can sit alongside the need to control public debt and keep taxes at tolerable levels is an open question. The UK has the highest tax burden overall since WW2. The economy is growing slowly; there is rising youth unemployment and industry has complained of costs such as the Net Zero target for carbon emissions.

Burnham will want to keep the leftwing of his party onside while also competing for the centre ground. Reform, the insurgent rightwing party led by Nigel Farage, has made much of immigration and opposing Net Zero on energy, although its popularity has not continued to rise in recent months; the Conservatives, led by Kemi Badenoch, are not yet seeing a rise in polling support to match the rising profile and voter approval for Badenoch herself. The Tories won a by-election in Scotland last week, where energy policy was a key issue. It is possible that Badenoch's party will start to gain ground, maybe taking the UK back to more familiar territory.

Even so, politics is therefore highly fluid, raising the possibility that no single party will achieve an overall majority in a general election. Much can change between now and the summer of 2029, when a general election has to be held. In the meantime, the international situation remains uncertain and hazardous. A new premier will need to improve relations with European neighbours – if not necessarily reversing Brexit – and must deal with a Trump administration unafraid to speak openly about the UK and its policies. That's a tall order for whoever gets the job.)