New UK prime minister, same bond market
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What is the main topic discussed in this episode?
Pushkin. The UK political merry-go-round has rotated once again, and we have a new prime minister in waiting. Today on the show, UK politics and UK markets and the connections between them. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from my home in Brooklyn, New York. Joining me today is the incomparable and irreplaceable Ian Smith, all the way from London. Ian, what is it you do for us again? What's your job? I'm the senior markets correspondent, Rob, here in London.
What does the new UK prime minister mean for the economy?
I am going to be the surrogate American listener today and pretend to be even more ignorant than I am about what's going on over there in markets and in politics. So let me start with a... broad question. You have a new prime minister in waiting. He is some kind of pinko communist, if you believe what you read in the American press. And yet the gilts market, which is supposed to be the thing that keeps the pinko communists over there in line, is going up or at worst is indifferent to the whole thing. What is going on? Maybe you can start by just giving us a thumbnail sketch of who this person is.
So Andy Burnham is the mayor of Greater Manchester.
How is the bond market reacting to the new political leadership?
He's just won the Makerfield by-election, which has given him a seat at Westminster and means he is likely to become our next prime minister in a string of prime ministers in recent years. It's a brave new era in British politics.
It's a lock though, right? It's going to be him. There's no chance somebody sweeps in at the last minute here. It's going to be him.
It's going to be him. It's a lock. He's a really interesting figure, a senior Labour figure for some years, you know, figurehead on the left of the party, a champion of devolution, moving more power away from London and to other areas of the UK. He gave a big speech this week on moving some of the power in the UK away from Westminster. So it's a really interesting time that he's taking over. But he obviously inherits a lot of the challenges that Sir Keir Starmer, who will be leaving as UK Prime Minister, faced, such as the UK's high debt, its sluggish growth, its unstable politics. So it's not going to be easy for him.
No, but the gilts market, at least looked at naively, glancing at the chart of the 10-year gilt yield, doesn't seem to be that worried on his behalf. It doesn't seem to be signaling that he's... A fiscally irresponsible person or, you know, he'll reignite inflation and so on. What do you make of what Gilts are doing right now?
So it's interesting. Yeah, as you say, he's much caricatured by investors, Andy Burnham. I spoke to investors when he was, you know, coming to the fore and there was a lot of leadership speculation around Starmer. He was viewed among the leading candidates as the most market negative of them. There's a perception among your investors that he will look to borrow more and he will shift the party and the government to the left. And yet when it became very clear that he was going to become the next UK prime minister, the market reaction has been very calm. Sterling has been very stable. Guilt yields actually took down, which means prices rose on the day that he won the make-or-fill by-election. So the reaction has been very calm from investors.
What challenges will the new prime minister face in office?
I think there's a few reasons, some of which have nothing to do with the UK, which is the inflation threats to the global economy and to the UK. are lessening with the Iran war to some degree abating. But some of them are about the things that he has said in the face that he has presented to investors. And he sought to present himself as more of a centrist figure.
Let's start with the war. It was striking to me that. In the war's inflation scare, which was a global event where it looked like oil prices were going to go bananas, there was going to be second order effects on prices all over the world. We actually started to see that in some places. Yields everywhere went up. Government bond yields everywhere went up, meaning government bonds prices went down.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:06–0:49
2
What does the new UK prime minister mean for the economy?
0:49–1:39
3
How is the bond market reacting to the new political leadership?
1:39–3:47
4
What challenges will the new prime minister face in office?
3:47–7:37
5
Why is the gilts market indifferent to political changes?
7:37–20:43