The FTSE 100 was slightly higher on Monday after Keir Starmer resigned as the UK Prime Minister, setting the scene for Andy Burnham to take power in the coming months.
There is a degree of uncertainty as to what happens next. Some political analysts believe Burnham could be in Number 10 by the end of July, while others predict a few months of debate. It all hinges on whether anyone else throws their hat in the ring, or if Burnham has a simple, unchallenged ‘coronation’.
With Wes Streeting now backing Burnham, the main contender has effectively withdrawn his challenge.
Although there is always an element of uncertainty in a change of Prime Minister, there haven’t been any major surprises in developments over the past few days, and markets are seemingly taking them in their stride.
The pound fell, and gilt yields rose in the immediate reaction to Starmer’s resignations, but these moves had all faded by lunchtime. The 10-year gilt was at 4.81% at the time of writing, down 3 bps on the day.
The steadiness in the bond markets helped lift the FTSE 100 0.2% on Monday.
“Talks to end the war between the US and Iran are underway. Markets could see heightened volatility during the process as this won’t be a simple handshake to get it done,” said Russ Mould, investment director at AJ Bell.
“To compound this situation, investors are on the edge of their seats regarding a seismic change in UK politics. Gilt yields moved up slightly on news Keir Starmer will step down as leader of the Labour Party and pave the way for a new prime minister.
“Bond markets already rate the UK as higher risk, as illustrated by the rise in gilt yields this year. There is potential for gilt yields to go even higher if markets worry about who might become the next chancellor and if there will be radically different policies under a new prime minister.”
UK banks were among the best-performing stocks on Monday, Lloyds shares were 2.2% higher at the time of writing. Barclays rose 2.3%.
Melten Energy & Metals was the FTSE 100 top riser, gaining 2.9%.
Babcock was the top faller, shedding 7%, after revealing a charge that dented profits.
Aarin Chiekrie, equity analyst, Hargreaves Lansdown, said: “Babcock’s full-year results contained few surprises as it delivered double-digit underlying revenue and profit growth, driven by strong performances in its nuclear and aviation divisions in the current geopolitical climate.”
“Governments around the globe are becoming more focussed on improving their defensive capabilities, and Babcock looks well-placed to benefit from this long tailwind and capture some of this extra spending. While underlying profitability improved sharply, this figure excludes a one-off £140mn charge tied to its Type-31 frigate programme. The charge stems from a design change that led to complex late-stage rework on the first two ships. Further costs can’t be ruled out, but any additional charges should be much smaller, as the remaining vessels are still at much earlier stages of production.”