UK shares fell on Friday as investors reacted to escalating political uncertainty over Prime Minister Keir Starmer’s leadership and renewed inflation risks from rising oil prices.
The benchmark FTSE 100 fell 1.20% by 10:58 am GMT, while the midcap FTSE 250 dropped 1.22%.
Investor sentiment weakened after Andy Burnham announced his intention to contest a parliamentary seat that is becoming vacant, potentially positioning himself as a challenger to Prime Minister Keir Starmer.
Political uncertainty weighs on markets
Investors expressed concerns that Burnham’s approach, described as business-friendly socialism, could lead to increased government spending and borrowing at a time when Britain’s public finances are already under pressure.
Russ Mould, investment director at AJ Bell, said a leadership process involving Burnham could increase uncertainty in the country’s political environment.
“A process involving Burnham promises to be more protracted and ‘noisy’, thereby prolonging and exacerbating the uncertainty about the political situation in the UK,” Mould said, as mentioned in a Reuters report.
Starmer has been struggling to maintain political support following the Labour Party’s weak showing in local elections held last week.
Meanwhile, Wes Streeting, who resigned as health minister on Thursday, is also expected to contest against Starmer if a formal leadership race begins.
The political developments added another layer of caution for investors already grappling with broader geopolitical and inflationary concerns.
Oil prices and Middle East tensions add pressure
Separately, markets were unsettled by fears of further escalation in the Middle East conflict after Donald Trump said his patience with Iran was running out.
Oil prices moved higher amid the tensions.
Brent crude futures rose 2.61% to $108.49 per barrel.
As a major oil importer, Britain faces heightened inflation risks if disruption in the Strait of Hormuz continues and crude prices remain elevated.
Higher energy prices could increase pressure on consumers and complicate the inflation outlook for policymakers.
Investors were also closely watching developments from the highly anticipated meeting between Trump and Xi Jinping.
However, the talks produced no major breakthrough regarding the ongoing conflict.
Francesco Pesole, FX strategist at ING, said markets did not receive enough reassurance from Beijing.
Miners and utilities lead declines
Sector-wise, metal mining stocks were among the worst performers, with the mining index falling 5.00%.
Utility shares also came under heavy selling pressure, dropping 4.88%.
Despite the broader market weakness, shares of 3i Group rose 5.40%, making it the top gainer on the FTSE 100.
The rebound came a day after the stock had fallen 12.76%.
The declines across UK equities reflected a combination of political uncertainty, geopolitical tensions, and concerns that sustained higher oil prices could further strain the British economy.
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