Sir Keir Starmer’s leadership is under intense pressure after his Health Secretary Wes Streeting resigned and a Labour MP stood aside to allow Greater Manchester Mayor Andy Burnham to attempt to return to Parliament and then challenge the Prime Minister.
Starmer has faced mounting calls to quit in the wake of Labour’s disastrous local election results last week – and speculation about a potential leadership contest will have a significant financial impact.
In the past few days, as speculation over the future of this Government has mounted, the value of the pound has fallen, the FTSE 100 stock index has struggled, and gilt yields – the return investors demand for investing in government debt – have risen.
Experts have speculated that a long, drawn-out contest to succeed Starmer could make things worse on all fronts. The date of the by-election has yet to be set, but the earliest it could take place is the middle of June, and it could be later. Before then, Burnham will have to persuade the Labour Party to allow him to stand. Then there will be drawn-out campaigning with Reform pledging to throw everything at the seat, which Burnham is by no means guaranteed to win.
If Burnham does win, there could then be a long leadership battle followed by a change of prime minister and potentially chancellor.
Here’s a round-up of what the uncertainty means for your finances.
Gilt yields rising – which can mean higher taxes or lower spending
The yield on government bonds – sometimes referred to as gilts – is currently higher in the UK than anywhere else in the G7 group of major economies.
Higher yields are bad news for the Government, as they mean it has to pay more to service its debt, which can force it to raise taxes or cut spending to fund this.
Yields climbed slightly after the announcement that Josh Simons, the MP for Makerfield in Greater Manchester, was standing aside in order to allow Burnham to run for parliament – and potentially prime minister.
They tend to go higher in times of economic uncertainty, broadly speaking, because investors want a better return for the risk they’re taking on with their investments in government debt.
Because of this, the longer a leadership contest goes on and the more unpredictable the outcome, the more dramatic the climb could be, according to experts.
“Bond vigilantes will prefer a quick contest, if there is to be one, or even the current status quo, in that at least they know what Starmer and Reeves are trying to do,” says Russ Mould, investment director at AJ Bell.
There are also fears specifically about Burnham, says Mould.
“While there’s no guarantee Burnham would win a by-election or contest to be prime minister, the fact he is on record as saying Britain must stop being ‘in hock to bond markets’ has helped push UK borrowing costs higher,” he says.
Burnham’s comments were a reference to policymakers often worrying about the impact their spending or tax policies will have on bond markets, and some interpreted them as a suggestion that he might be more lax than the current government when it comes to meeting the UK’s fiscal rules – a set of constraints placed on government budget policy.
Gilt yields react dramatically when these constraints aren’t followed – as we saw in the aftermath of former prime minister Liz Truss mini-Budget. In this case, the Government at the time introduced a series of sweeping tax cuts without providing a forecast to show whether it would still meet its fiscal rules.
There is no indication at this stage that a similar event will happen, although yields are already at a higher point than they were when Truss took power due to various other factors – including a higher interest rate environment.
…and that’s bad for your mortgage
Rising gilt yields can signal bad news for mortgage holders.
Fixed mortgage rates – the most common type – are priced off multiple factors, including the need to drum up business, and, crucially, something known as swap rates.
These are the rates at which lenders buy fixed-term funding from other financial institutions.
These tend to move in tandem with gilt yields, as they are both influenced by the same market expectations regarding future interest rates and inflation.
These swap rates have been elevated for months now due to the war in Iran, and rising gilt yields will heighten fears they could rise further.
Chris Sykes, a property finance specialist at MSP Financial Solutions, said: “Usually, if gilt yields increase, swaps also will follow this trend, so rising gilts also lead to rising mortgages.
But he also added that there was an element of good news.
“Fortunately, the movements so far due to political uncertainty seem fairly minimal; the war in the Middle East has led to these large increases we’ve seen recently, so hopefully this political uncertainty has a minimal effect on mortgage pricing,” he said.
Have a pension or investments? They could struggle temporarily
The FTSE 100 already fell on Friday morning after news that Burnham was considering standing as an MP emerged.
A process involving Burnham also promises to be more protracted and “noisy”, thereby “prolonging and exacerbating the uncertainty about the political situation in the UK,” says Mould.
Susannah Streeter, chief investment strategist at Wealth Club, explained: “It’s the length of the uncertainty which I think will be damaging. We also saw this in the run-up to the Budget, with such a long period of speculation about whether we will see more tax rises, it dampened down investment.”
So what does this mean if you have pensions that are invested in stocks and shares, or investments via an ISA or general investing account?
Streeter said that investments with a UK focus may be hit, but said in the long term, people should not worry.
“It may weigh on funds focused on the UK market for a time, but we are still likely to see a recovery. We have seen this repeatedly in the past and again this year, with the FTSE 100 brushing off previous upsets to reach record highs in February,” she said.
Jason Hollands, managing director at Evelyn Partners, also suggested that calm over the situation was wise.
He said: “Most UK pension funds now have relatively low exposure to UK equities and mid-cap domestic stocks represent only a very small proportion of overall pension assets, so the direct equity market impact on pension funds is likely to be limited and more than offset by soaring US stock prices.
“Unless someone is on the verge of retirement and about to draw on their pension, it would be unwise to judge long-term pension performance on the basis of short-term political and market volatility. The medium- to longer-term drivers of pension returns will remain overwhelmingly global in nature.”
Hence then, the article about the damage the labour leadership race could do to your mortgage and pensions was published today ( ) and is available on inews ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( The damage the Labour leadership race could do to your mortgage and pensions )
Also on site :
- Mercedes-Benz ‘willing’ to move into defense production – CEO
- US charges alleged Iran-backed Kataib Hezbollah suspect – What we know
- ‘Surrender not an option’ for Palestine – Iranian envoy