Potential Leadership Changes in UK Could Impact Bond Yields and Currency

Analysts Ruth Gregory and Paul Dales from Capital Economics have suggested that potential changes in the UK's leadership could affect financial markets. According to Jin10, if Keir Starmer or Rachel Reeves were to replace the current Prime Minister and Chancellor of the Exchequer, UK government bond yields might rise, and the pound could weaken. The analysts noted that future market movements would depend on the policies of the new leadership. Starmer is under pressure due to his handling of the Peter Mandelson incident, a former ambassador to the U.S. The report indicates that if the new team were to relax fiscal constraints and commit to significantly increasing public spending and borrowing, it could lead to a sharp rise in 10-year bond yields, potentially exceeding 5%, alongside a decline in the pound. However, if the government is forced to abandon these plans, reminiscent of former Prime Minister Liz Truss's "mini-budget" scenario, such market volatility might be short-lived.