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It’s a cliché that prime ministers get booted out of office for the same reason they are installed. But clichés are useful. And Starmer was arguably installed on the basis that he would provide stability and be a bit, well, boring.
What did markets make of his premiership? First up, currency. In a word, boring.
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The past two years haven’t been exactly incident-free as far as the grand stage of geopolitics goes. And the domestic picture hasn’t been completely tranquil either.
But currency traders looking for a bit of action have had little joy under Starmer. Taken as a whole, Starmer’s reign has translated into the most boring period for at least 35 years, measured by annualised volatility. And it ends Starmer’s reign at modestly higher trading levels.
Second, stocks:
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For much of Starmer’s tenure UK large-cap stocks threatened to be the standout best-performing of MSCI developed market regions. But they end the almost two-year period firmly middle-of-the-pack.
Stock-jockeys looking for thrills will have had to flock to Korean semis or AI darlings. Sure, UK equities delivered the strongest risk-adjusted returns of developed market MSCI regions, and a cumulative forty per cent total return isn’t bad. But finding excellence in risk-adjusted returns is peak boring.
Moreover, how much of this strong performance had to do with Starmer is questionable. Energy stocks were helped out by Trump’s closure of the Strait of Hormuz, and banking stocks have been aided by higher interest rates. Still, UK stocks are a data point. And not including it would be weird.
Let’s move now to the main event: the bond market. UK government bond yields are pretty high. And they are higher than they were when Starmer took power back in July 2024 despite a number of Bank of England interest rate cuts. Interesting?
Commentators from the right have become increasingly obsessed by a forthcoming economic apocalypse. So a good candidate for excitement.
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Since July 2024 the Bank of England has delivered fewer rate cuts than the ECB or the Fed. This could be because of policies pursued by Starmer’s government, or maybe due to above-target inflation just being stickier in the UK.
And the additional yield required to invest in longer-dated bonds — from overnight deposits all the way out to 10-year gilts — has increased. But only as much as it has for Bunds and treasuries.
The combination of fewer rate cuts and boringly average yield curve steepening has left ten-year gilt yields around 60 basis points higher than they were back in July 2024. The yields on Bunds are only around 40 basis points higher over the same period.
Gilts’ underperformance could well contain a modest plonker premium. And the size of this premium is going to be something everyone will be looking at closely over coming weeks and months. But right now, it’s hard to get too excited over this. 🥱
Don’t get us wrong: when it comes to financial markets, boring is bad if you’re a finance journalist or a market maker. But boring is far from awful if you’re an actual real-life person living in the actual real-life world.
Providing stability and being a bit boring — at least on financial measures — turns out not to be what the Parliamentary Labour Party really wanted after all in a leader.
We look forward to seeing whether a more interesting and dynamic prime minister can lead without bringing more interesting markets with them.
