The British political scene is entering a new round of turbulence, as the resignation of the Prime Minister is intertwined with uncertainty in the fiscal outlook.

In the case of a significant decline in support, British Prime Minister Stammer announced his resignation on Monday. Stammer stated in a declaration that he would first resign as leader of the Labour Party. The successor nomination process will start on July 9, and the related election will be completed before the end of the parliamentary summer recess, by September 1. He stated that he will continue to serve as prime minister until the entire process is completed and will "ensure a smooth transition of power" to the winner. Stammer said, "The question my party is now considering is whether I am still the best person to lead the Labour Party in the next election. I have heard the answer from the parliamentary party." He added that he will "accept candidly" the party's judgment of him. Stammer's resignation opens the door for the fifth prime minister in the UK since 2022 a shocking "milestone" for a political system in the UK that prided itself on political stability. Andy Burnham is widely seen as the most likely successor, in part because he won a resounding victory in the by-election in Meighfield, near Manchester, led by Nigel Farage's Reform UK party last week. Just six weeks ago, Reform UK party almost swept all contested seats in the local elections in the same region. Former Health Minister Wes Streeting resigned from the cabinet after the local elections and has expressed his intention to run for party leader. However, according to Labour Party rules, candidates must receive nominations from one-fifth of Labour Party parliamentarians. It is currently unclear whether he will be able to garner support from 81 Labour Party MPs to compete with Burnham. Stammer's announcement of his resignation timetable was in response to demands from dozens of backbenchers, including Energy Minister Ed Miliband, and other cabinet members. Before the heavy defeat in the local elections last month, Miliband had privately urged Stammer to devise a plan for an "orderly transition". In fact, internal dissatisfaction with Stammer's leadership has been simmering within the Labour Party due to a series of mistakes, unpopular policy decisions, and costly policy shifts. The local elections in early May became a catalyst for the internal discontent Labour lost nearly 60% of its original seats, while the Reform UK party and the Green Party made significant gains. After the electoral disaster, about a quarter of the 403 Labour MPs publicly demanded Stammer's resignation. It is worth noting that media reports had previously suggested that Stammer could make a "clear statement" on June 22 (Monday) and announce his resignation timetable. The bond market reacted first. The yield on 10-year UK government bonds rose by about 9 basis points to 4.84% last Friday, as traders priced in Burnham's victory, domestic political uncertainty in the UK, and the possible shift in fiscal policy with future leadership changes. As of writing, the yield on 10-year UK government bonds has dropped by more than 3 basis points, to 4.81%. In addition, the British pound rose slightly against the US dollar, trading at 1 GBP to 1.324 USD. The FTSE 100 index in the UK rose by 0.22%. Against the backdrop of escalating energy prices driven by Middle East conflicts, the already fragile economic growth in the UK is now facing risks. Political instability could lead to economic hardship in the UK. Political turnover is frequent in the UK, with five Prime Ministers changing in seven years. Stammer promised to focus on economic development after being elected in July 2024. However, the UK economy has been struggling due to various factors such as government taxation policies, ageing population issues, and persistently low productivity. The ongoing political turmoil further weakens investor confidence, casting a shadow over economic recovery. Following Stammer's announcement of his resignation as British Prime Minister, the market will focus on who will take over 10 Downing Street. Earlier this month, Matthew Ryan, head of market strategy at the foreign exchange financial institution Ebury, issued a stern warning about the "fiscal risks of Burnham becoming Prime Minister." The institution's analysis suggests that among the realistically viable successors, Burnham poses the greatest risk to the pound. His past political record and policy instincts indicate that he may push for "significant spending relaxation supported by borrowing and further raising taxes on capital and high-income groups." This would happen against the backdrop of extremely limited fiscal space in the UK rising debt-to-GDP ratio, weak economic growth, increasing inflation pressures, and an ageing population. Ryan warned, "The problem is, the UK simply cannot afford such an experiment." He also mentioned that although Burnham had softened his attitude towards the bond market in the past, the "bond vigilantes" will not forget and will punish accordingly. The report stated that if Burnham wins, this would represent the most significant shift to the left in various succession scenarios, and the market would quickly reassess the fiscal risks in the UK. Other potential candidates, such as Ed Miliband and Angela Rayner, are also seen as higher-risk to the market due to their left-leaning positions and propensity for increased spending. Only Wes Streeting, considered closest to the current centrist position, is seen as slightly supportive of the pound. Ryan also warned that if the successor leans towards the left, it will test fiscal rules, increase bond issuance, and potentially lead to a further steepening of the yield curve, continued weakening of the pound, and a rapid reassessment of risks in the market, similar to the mini budget turmoil in Leeds. in 2022.