As Britons eye the potential departure of Prime Minister Keir Starmer, they are also wondering whether the new successor will be able to stabilize the UK economy after years of challenging conditions.
Sharp speculation on Tuesday about the possible departure of Britain’s prime minister sent benchmark 10-year bond yields above 5%, their highest level since 2008, amid fears that his successor will veer left. Yet an open-ended binge seems neither necessary nor likely.
People believe Keir Starmer is a usurer and the bond markets can learn to live with each other.
Following disastrous local election results, Starmer’s prospect of forest-destroying, which is already damaging Britain’s properties, is increasing.
Ten-year bond yields have risen 15 basis points since Friday, as a wave of lawmakers called on him to step down.
The unprecedented danger is that a left-leaning successor, possibly Manchester Mayor Andy Burnham, announces excessive spending promises during a lengthy leadership campaign. Investors may be spooked by the rising deficit and Britain’s debt, which stood at 94% of GDP as of March.
Liz Truss’s short-lived premiership is in danger. His September 2022 “mini-budget”, replete with unfunded tax cuts, caused a bond market strike, sending 10-year yields rising 70 basis points to 4.5% in four days.
The same metric is already 60 basis points above that level, although this probably has more to do with the lingering inflation shock and the fuel crisis caused by the Iran crisis.
The first imperative for a new leader is to avoid unprovoked attacks on Britain’s financial institutions. The current Finance Minister Rachel Reeves has avoided this by publishing Office for Budget Responsibility forecasts with her budget.
She is also big on fiscal rules, which require balancing the budget and reducing debt over time.
Nevertheless these rules can be changed. Reeves expects to balance current spending and revenues, excluding investments, by 2028/2029.
That target could be put back by, say, five years without the UK looking like a fiscal basketcase and, alternatively, fiscal easing could be complemented over time with cuts elsewhere.
Investors’ view of UK market stability:
Investors may believe that rule-twisting is just the beginning. But a new leader could curry favor by announcing serious reform of Britain’s vast welfare state, something Reeves and Starmer have been too timid to do.
Cuts there could lead to reductions in employment taxes on companies and workers, which would boost growth without hurting government finances.
Starmer’s successors may also seek to nationalize more assets such as utilities or housing. The Earth will not have to pay the price for this. For example, bringing the ailing Thames Water into administration could be done without much borrowing from the state.
And cutting water bills or energy network charges would help consumer confidence and reduce inflation, even if at the expense of the companies’ owners.
And while these are local elections, in practice, they apparently revolve around specific local issues.
New emerging risks amid challenges to the UK economy:
Therefore, whoever replaces Starmer will have some leeway to deal with the situation left by bond watchdogs without self-immolation.
The risk remains that he gives big pay raises to public workers and spends more money on welfare, as Reeves and Starmer did.
Yet the fear of a Truss-style fate is likely to keep any successor’s wildest impulses in check.
Notably, UK Prime Minister Keir Starmer held talks on May 13 with Wes Streeting, the health minister and widely seen as one of several leadership contenders.
More than 90 Members of Parliament have called on Starmer to step down after his disappointing performance in local government elections.
On 13 May the Trade Union and Labor Party Liaison Organisation, which represents Britain’s unions, said that Starmer “will not lead Labor into the next election.”
