Yes, Prime Minister. But what about the Bond Market?

Published: July 2026

The political speculation is finally over.  Andy Burnham has arrived in Number 10, bringing with him a reshuffled Cabinet and a new Chancellor in John Healey.  As with every change of government, the headlines have been dominated by who is in, who is out, and what the new administration might have planned.

For investors, however, the more important question is not who occupies Downing Street, but whether the government’s policies are viewed as credible by the financial markets.

Since Brexit, Downing Street has welcomed a succession of Prime Ministers and Chancellors, each arriving with their own priorities.  Through it all, the questions asked by financial markets have barely changed.

The early announcements have certainly been eye-catching.  A reduction in VAT on domestic electric bills, lower business rates for pubs, clubs and live music venues, together with a continued commitment to increased defence spending, all point towards a government keen to ease the cost of living while investing in the UK’s future.

The challenge, of course, is that these ambitions come with a price tag.

History has shown that governments can announce almost anything, but financial markets ultimately decide how cheaply those promises can be funded.  When investors become concerned that borrowing is rising faster than the public finances can support, they demand higher returns for lending to governments[1].  That is why fiscal credibility matters.  It is also why gilt markets often have more influence over Chancellors than Chancellors do over gilt markets.

So, what are markets telling us?

So far, the reaction has been remarkably measured.  UK equities have continued to perform well, sterling has remained relatively stable, and while gilt yields have edged a little higher, there has been nothing to suggest investors are questioning the UK’s fiscal credibility at this stage. In fact, much of recent market movement has been driven by events elsewhere, including another strong US corporate earnings season and renewed tensions in the Middle East pushing oil prices higher.

That relatively calm response may simply reflect the fact that markets are waiting for more detail.

The first Autumn Budget under the new Chancellor is likely to provide the first real indication of how the government intends to balance its spending commitments with maintaining confidence in the public finances. Investors will be looking beyond the political slogans to see how new policies are funded, whether borrowing remains under control and what this means for inflation and interest rates.

Ultimately, governments come and go, but the principles that drive investment markets remain remarkably consistent.  Political change often creates plenty of headlines, yet long-term investment returns are far more heavily influenced by economic fundamentals than by the personalities occupying Number 10 or Number 11.

For investors, that remains the message worth remembering.  Election victories are won at the ballot box, but economic credibility is earned in the bond market.

We are always here to help you with any questions or concerns you may have.  If you would like to talk to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.

[1] IMF, 2021; Institute for Fiscal Studies, 2025: Is the UK in hock to the bond market? | Institute for Fiscal Studies; When It Comes to Public Finances, Credibility Is Key

Disclaimer

Opinions constitute our judgement as of this date and are subject to change without warning.  The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.  Past performance is not a reliable indicator of future performance.

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