UK Political Shifts and Economic Forecasts: What's Next?

Societe Generale's UK economist suggests limited borrowing leeway for a new British leader if Keir Starmer is replaced as PM this year. International investors are not focused on UK political changes. Labour, trailing Reform UK in polls, faces potential leadership challenges, with government borrowing and bond yields as constraints.

A Societe Generale economist has indicated that any new British prime minister, should Keir Starmer be replaced, will have limited room to increase government borrowing. This insight suggests foreign investors aren't greatly concerned about a potential change in UK leadership but are keen on a market-friendly finance minister appointment.

Starmer, experiencing low poll numbers, has reassured his position, though his Labour Party lags behind Reform UK in polls. Sam Cartwright noted a likely leadership challenge if the Labour Party faces significant losses in the 2026 local elections.

Despite the pressures, UK government borrowing remains at 4.5% of GDP, with bond yields the highest in the G7. This restricts the new leader's capacity to increase spending, although Labour's shift on welfare reforms signals different spending priorities. Investor interest in British political risks has lowered since the November budget by finance minister Rachel Reeves, which was generally well-received.

(With inputs from agencies.)