London’s domestically focussed FTSE index slipped to a one-week low on Monday, bogged down by political uncertainty after Prime Minister Keir Starmer said he will resign.
The internationally focussed FTSE 100 index slipped 0.1% by 0930 GMT, while the midcap FTSE 250 dropped 0.7%.
Greater Manchester mayor Andy Burnham, who recently won parliamentary elections, stands as the top candidate for prime minister, although investors say a change in leadership is unlikely to change conditions a lot.
“Britain’s been going in the wrong direction and I don’t really think, unfortunately, that any replacement for Keir Starmer, is going to be much different,” said David Morrison, senior market Analyst at Trade Nation.
Rate-sensitive household goods and home-construction stocks fell over 1% and were among top sectoral decliners while the pound eased 0.1% versus the dollar.
Former health minister Wes Streeting is also in the leadership race, but one senior figure in the party said they believed Streeting could do a deal with Burnham, giving him a senior role if he stayed out of the contest.
“I rather think that Rachel Reeves will probably be gone fairly soon. If we find out that Wes Streeting isn’t going to stand and gives Burnham his full support, then he might get rewarded with something like Chancellor of the Exchequer,” Morrison said.
Reeves was the Chancellor in the government led by Starmer, whose resignation paves the way for Britain to have its seventh leader in a decade.
The next candidate will be scrutinized over fiscal policy plans at a time when concerns over debt-backed public spending has sent the yield on the benchmark 10-year Gilt to its to its highest since 2008.
Citizens have been disappointed over Starmer’s handling of the economy as public debt and borrowing costs soared in recent years.
Geopolitical tensions in the Middle East also had investors price in no change to interest rates by the Bank of England this year, according to LSEG-compiled data.
Economic and political uncertainty, alongside geopolitical concerns, have weighed on the domestically focused midcap FTSE index, which underperforms the blue-chip FTSE 100 index this year.
In M&A news, easyJet rose 3.1% and was among top movers on the FTSE 250 index after Castlelake disclosed its £4.74 billion ($6.26 billion) takeover bid for the budget carrier. The airline had rejected three proposals from the U.S. investment firm.
Babcock International lost 5.2% after the defence and engineering group reported a 19% drop in annual underlying operating profit.
Globally, there was some relief that negotiations to end the U.S. and Iran conflict were continuing. However, investors awaited clarity that shipping would resume through the Strait of Hormuz.
This week would also mark 10 years since Britain decided to leave the European Union.
(Reporting by Johann M Cherian in Bengaluru)
