Would markets care if the Prime Minister changed tomorrow?

Added: 2026-05-30

[00:00:00]Will the UK's stock and bond markets care [music] if Sir Ki Stmer falls from office? Students of history and voters may be a gasast that the ruling Labor Party seems determined to engage in the sort of bloodletting that has cast conservatives, liberals, and Labor alike from office and into the electoral wilderness across the 19th, 20th, and 21st centuries. But financial markets from their own narrow and some would say selfish perspective have tended to approach such episodes with a fair degree of indifference.

[00:00:33]Now any student of British history would be tempted to argue that voters shun political parties or governments which seem to put their own internal disputes and self-interest above those of the nation. Prior episodes of internal division and wrangling have included well it took the Tories until the 1880s to reassert themselves after the split over the repeal of the corn laws under Peele in the 1840s. Conservative infighting over free trade and tariffs again contributed to a landslide defeat in the 1906 general election and a dozen years out of office. The bitter battle between Aswith and Lloyd George opened the door for Labour and meant that the Liberals never again took power on their own after 1918. Labour lost 80% of its seats in 1931's general election, including that of its leader Arthur Henderson in its worst result ever, and it only returned to office in 1945. The launch of the Breakaway Social Democratic Party in 1981 was a contributor to Labour's losses in 1983, 87, and 92 and helped to cement an 18-year period of Tory dominance of Downing Street. And a run of shortlived prime ministers after David Cameron's 2016 resignation in the wake of the Brexit referendum, well, there, you could say, helped to pave the way for Labour's third highest tally of parliamentary seats ever in 2024's poll.

[00:01:54]The electorate may therefore give polit internal politicking a bit of a cold shoulder when the ballot box gives them the chance to do so. But financial markets appear to take a bit more of a detached view of proceedings. Perhaps because their focus remains pounds and pence in the shape of corporate profits, cash flows, and dividends rather than opinion polls. Now, before we go any further, by the way, do please let me say that neither myself nor my employer are taking sides here. So, please don't troll us on social media or accuses of bias. We're just taking a dispassionate look at how the financial markets have reacted to the appointment of midterm prime ministers, whatever their political affiliation, whatever their philosophy and credo. That aside, since the inception of 196 1962's Footsie Old Share, seven prime ministers have taken office midway through a parliament following the departure of their predecessor, James Callahan and Gordon Brown for Labor in 1976 and 2007 and John Major, Theresa May, Boris Johnson, Liz Strauss and Rishi Sunnak for the Conservatives in 1990, 2016, 2019 and then that final gaggle in 2022 respectively. On average, the Footsie all share made no immediate progress under the SEPT tech during their first 12 months in the hot seat, rising three and a half% over the first three months of the new PM's tenure, gaining 3.3% on average over 6 months and coming in flat almost over a year, although Liz Trust didn't quite manage to last that long.

[00:03:30]At first glance, the guilt market as benchmarked by the 10-year issue tends to be more sanguin still across those terms in office for which there is a date available that includes Mr. Callahan. The average movement in guilt yield is actually down not up. However, those averages are flattered by the sharp decline seen dur during John Major's term in office, which encompassed Sterling's ejection from the exchange rate mechanism in 1992.

[00:04:01]Freed of the obligation to defend the pound, Major and his appointed chancellor of the excheer Norman Lamont were able to slash interest rates, which in turn helped to drag down the benchmark 10-year guilt yield. This suggests that while political stability is welcome, there are many other factors at work when it comes to how the stock market performs and indeed the guilt market performs over the term in office of midterm prime ministers and probably any prime minister. And all seven encountered hugely different economic circumstances with the result that the footsy all share did provide different returns over time. It's only the averages that come out pretty stable.

[00:04:40]Mr. Callahan was battling inflation which drove investors to rail assets and equities as it galloped higher. Mr. Major had to confront a recession and the workings of the exchange rate mechanism where Sterling's departure actually turned out to be a bit of an economic blessing. You could argue in some ways Gordon Brown possibly got the worst hand of the lot in the form of the great financial crisis. While Boris Johnson may dispute that as his administration had to handle COVID 19 lockdowns and also try to finalize the terms of Brexit, something that had confounded his predecessor Theresa May.

[00:05:15]Rightly or wrongly, Liz Truss is widely seen as being responsible for her own swift demise thanks to a poorly communicated and potentially unfunded package of tax cuts and deregulation.

[00:05:28]Meanwhile, Rishi Sunnak, well, he was left to pick up the bits as the nation's finances were in absolute tatters by the time he took office back in 2022.

[00:05:39]So, that by the way is an issue that's still to be resolved given how the total sovereign debt of the UK continues to grow and the interest bill continues to gobble up more than the annual defense budget. The economy therefore is one factor and a successor Texia Kastama should there be one could have an impact here depending upon their policies for taxation, investment, spending and regulation. The other factors for the stock and market and indeed bond market to some degree are corporate profits and cash flows and from a stock perspective the price of valuation investors are prepared to pay to access those profit and cash streams. Politics and policy can again to some degree affect the earnings or E in the price to earnings valuation calculation as will external events. But investors views of a country's political stability and acumen could influence the P in the PE or the price they pay to access again those profits.

[00:06:39]Thank you for watching. Hope that you and your families are all keeping well and I look forward to seeing you again next time.

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