Borrowers are warned that political volatility could lead to higher interest rates.
Speaking outside Downing Street earlier today, Sir Keir Starmer announced he will be stepping down as Prime Minister after nearly two years in charge. But, with his successor set to be the country’s seventh leader in just 10 years, should UK households be worried about the effects of more upheaval on their finances?
“A departing Prime Minister rarely changes your finances overnight,” reassured Charlotte Kennedy, Chartered Financial Planner at wealth management company, Rathbones, but added that it can “create uncertainty that affects markets, confidence and expectations”.
According to Adam French, Head of Consumer Finance at Moneyfactscompare.co.uk, there has been a “fairly muted response so far” to news of the resignation. However, he explained that money markets had already priced in a fresh wave of political uncertainty following last week’s by-election results (which saw frontrunner to replace Starmer, Andy Burnham, elected as MP for Makerfield).
“While Andy Burnham appears to be in pole position to take the helm, whoever ultimately takes power will inherit the same difficult fiscal backdrop and quickly discover there are no easy wins,” said Kennedy.
“The UK faces a challenging set of public finance constraints, with limited room for additional spending and persistent questions about how future commitments will be funded. Fears remain that spending cuts, tax rises or a bitter cocktail of both could be required to pay for any flagship policies,” she continued.
“Episodes of political volatility tend to push up borrowing costs”
With the mortgage market only recently showing signs of recovering from the impact of conflict in the Middle East, borrowers may feel concerned that more turbulence could see interest rates trend upwards again.
“Episodes of political volatility tend to push up borrowing costs,” said French, explaining that this is due to the greater perceived risk to lenders. However, he added that whether (and how far) interest rates will climb in the coming months highly depends on the fiscal policies proposed by those vying for the leadership position.