UK markets stay subdued during Starmer tenure

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UK markets during Starmer

Highlights

Sterling posts its least annualised volatility in at least 35 years during Starmer’s tenure, ending at a modestly higher level despite global events.
UK stocks finish with a cumulative total return of about 40%, the strongest risk-adjusted returns among developed MSCI markets, though mid-ranked in outright performance.
Ten-year gilt yields remain about 60 basis points above July 2024 levels as the Bank of England delivers fewer rate cuts than the ECB or the U.S. Federal Reserve.

Market performance across currencies, stocks and bonds

As reported by Financial Times, sterling trading under Starmer is marked more by stability than by disruption, with the currency showing the least volatility in at least 35 years when measured on an annualised basis. The period also ends with the pound at modestly higher trading levels, even though the past two years include significant geopolitical and domestic events.

UK large-cap equities spend much of Starmer’s tenure appearing capable of leading MSCI developed market regions, but finish the nearly two-year period closer to the middle of the pack. Even so, UK stocks deliver the strongest risk-adjusted returns among developed MSCI markets, with a cumulative total return of about 40%.

In the bond market, however, government borrowing costs remain elevated. Ten-year gilt yields stand around 60 basis points higher than they are in July 2024, despite several Bank of England rate cuts, while German Bund yields are only about 40 basis points higher over the same span.

Policy implications and investor focus

One factor behind the gilt move is that the Bank of England delivers fewer rate cuts since July 2024 than either the European Central Bank or the U.S. Federal Reserve. That difference may reflect the effects of government policy, or simply the fact that inflation in the UK proves more persistent than policymakers would like.

The article also notes that part of the equity performance may have little to do directly with Starmer’s leadership. Energy stocks benefit from Donald Trump’s closure of the Strait of Hormuz, while bank shares are supported by higher interest rates.

For investors, the main question now is whether gilt underperformance includes a modest political risk premium. That issue is likely to stay in focus in the coming weeks and months, even if the broader verdict on Starmer’s market record remains one of steadiness rather than drama.

In our earlier article on sterling sliding amid growing speculation about Keir Starmer’s exit, we explained how mounting leadership uncertainty was quickly feeding into currency moves and reviving expectations of higher near-term volatility. We also noted that investors were closely monitoring the gilt market, where yields jumped on concerns that political turmoil could undermine fiscal discipline and keep UK borrowing costs elevated.

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