Starmer's UK Leadership Woes Add to Gilt Risks, Rabobank Says

Summary

Rabobank's Jane Foley warns that UK gilt markets face increased risk from political uncertainty surrounding Prime Minister Keir Starmer's leadership. She notes that the market has already priced in underperformance at the long end due to potential leadership shifts toward the soft left, which could lead to unfunded spending increases. The discussion highlights the market's sensitivity to fiscal credibility given the UK's high debt levels.

• UK gilt market underperforms amid political uncertainty about Starmer's leadership.
• Betting odds suggest next Labour leader could come from soft-left lobby, e.g., Angela Rayner.
• Market has no appetite for unfunded spending increases, as seen in Liz Truss era.
• UK debt-to-GDP ratio at 100% raises concerns about fiscal discipline.
• Chancellor's credibility from sticking to fiscal rules may be questioned if leadership shifts left.
• No formal leadership challenge over weekend, but future risk remains.