New PM, same story: what Starmer’s resignation really means for your money

Keir Starmer announced his resignation as prime minister yesterday, paving the way for the country’s seventh leader in a decade. Andy Burnham, the former Mayor of Greater Manchester, is the overwhelming favourite to succeed him.

For many people, the immediate instinct is to wonder what it means for their savings, their investments, and their mortgage. The honest answer is: probably nothing. At least not yet, and not because of the leadership change itself.

 

What the markets actually did

Markets had seen this coming for months. The pound had already lost around 3% since February as Starmer’s leadership came under increasing threat. By the time he stood outside Number 10, there wasn’t much left to price in.

UK 10-year bond yields fell four basis points and the pound edged slightly higher against both the dollar and the euro once the resignation was confirmed and Burnham’s path cleared. That’s not the reaction of a panicking market – it’s the reaction of one that was already expecting the news and found some relief in the orderly transition.

The FTSE 100 was little changed in the immediate aftermath, with global traders more focused on US-Iran talks and the oil price. In short: your ISA, your pension, your savings rate, and your mortgage deal did not change yesterday because Keir Starmer resigned.

 

The Truss exception that proves the rule

The one recent PM change that did move markets – dramatically – was Liz Truss’s mini-budget in 2022. But it’s crucial to understand why. Mortgage rates nearly tripled overnight, the pound fell, and interest rates soared far faster than in comparable countries.

That wasn’t caused by a change of prime minister. It was caused by a specific, fiscally reckless policy decision – over £50 billion of unfunded tax cuts – announced at the worst possible moment, with inflation already running at 10%.

When Rishi Sunak replaced Truss, markets stabilised on the expectation that he could restore fiscal credibility, with the FTSE 100 rising and the pound recovering.

 

What to watch for with Burnham

The markets’ reaction to Burnham will depend almost entirely on signals about fiscal policy. The central question is whether the next Labour leader will maintain Chancellor Reeves’s fiscal rules. A candidate signalling higher public spending could push gilt yields higher still.

Analysts have noted that markets are wary of Burnham’s previous policy positions and would prefer to see his governing ideas fleshed out via a leadership contest, keeping surprises to a minimum. For now, the expectation is that we will see more of a continuation of the current direction from the government.

For savers, that means interest rates remain where the Bank of England sets them – unchanged by who lives in Downing Street. For investors, the FTSE is driven by global earnings and global sentiment far more than domestic politics. For mortgage holders, the key variable remains gilt yields, which in turn reflect inflation expectations and Bank of England policy, more so than who’s prime minister.

Higher gilt yields tend to feed through fairly quickly into mortgage pricing, so sustained political uncertainty does carry some risk for fixed-rate deals. But an orderly handover to a fiscally cautious successor is about as benign an outcome as markets could hope for.

Watch what Burnham does with the budget. That’s when your money should start paying attention.