13 May 2026
Not over yet for Prime Minister (PM) Keir Starmer: after struggling badly in No.10 for nearly two years, and despite growing pressure within the Labour parliamentary party for Starmer to resign, a formal leadership contest to oust him has not yet been triggered.
As of this morning, more than 80 Labour MPs have come out publicly to demand his resignation or set a departure timetable. However, Starmer remains defiant – with reports yesterday stating he has told the Cabinet he intends to fight any challenge and “get on with governing”.
The UK now looks set for a summer of severe political uncertainty. Against the already inflationary backdrop of the Iran war, gilt markets will remain especially skittish and equity markets may struggle to make gains short of an (unlikely) quick resolution on the domestic political front. Elevated UK bond yields, which factor in both inflation worries and a 'moron premium' after years of economic mismanagement, were already a major impediment to productivity-enhancing business investment and risk markets even before the Starmer uncertainty erupted – now it’s worse.
Getting rid of a Labour leader is difficult: If Starmer refuses to step down, a challenger needs written support from 81 Labour MPs. While Starmer is deeply unpopular, none of the alternatives whom Labour could elect in his place have yet forcefully come forward to challenge him – which may reflect the fact that the party wants to give time for Manchester Mayor Andy Burnham to enter the contest, or the fact that any MPs who wish to challenge him do not have sufficient support. If none of the top contenders, such as Angela Rayner, Wes Streeting, or even Ed Miliband, have the numbers to trigger a leadership election, Starmer may be able to struggle on. For potential successors to the right of Starmer (including Wes Streeting), it may also be that they do not believe their policy leanings would engender support within the party, while successors to the left (including Angela Rayner) may worry about unsettling markets or would prefer to back Burnham instead. If Starmer rides out the current wave of pressure, he may bet that the Greens and/or Reform can fight and win any seat which could be vacated by a Labour MP, giving Manchester Mayor Andy Burnham a chance to enter the fray.
New leader, same problems: The Labour Party is home to a diversity of political views – ranging from far-left Communist sympathisers to centre-right pro-market ‘Blairites’. Reconciling these opposing positions is never easy. For this reason, the huge 165-seat working majority which Labour enjoys in Parliament is more of a curse than a gift. Majorities that are too small or too large allow small bands of MPs who oppose government policy to cause problems, either by holding the crucial swing vote in the case of small majorities or by fostering factionalism in the case of large majorities. Starmer is Labour’s middle ground – and having won the party’s first election in 14 years, one might have hoped he had as good a chance as any to unite the party over some common ground. Instead, under his leadership, the government has veered around and fumbled – passing anti-growth and inflationary labour market and welfare policies while paying lip service to the idea of being pro-business and pro-growth. Meanwhile, the government has routinely failed to pass legislation to curb bloated government spending. It is not obvious why the alternatives to Starmer would not suffer an even worse fate in this regard. To get growth back on track, the UK needs a sensible energy policy to increase supply and decrease prices, a light-touch approach to labour market and product market regulation, a 'say yes' attitude to planning law, and somewhere in the range of 4–5 percentage points off both tax and public spending as a share of GDP. None of this is impossible, nor is it a lurch towards some kind of radical, unfettered free-market capitalism – and it should be quite achievable by a centre-left government with such a large majority. If potential challengers to Starmer had serious policy solutions, they would be coming out forcefully to make their case. The silence could be telling.
Comparisons to the Truss episode: While the run-up in bond yields on the back of renewed political and fiscal uncertainty centred around the PM draws an obvious comparison to the Liz Truss budget in September 2022, the current situation different in important respects. When PM Liz Truss and her Chancellor, Kwasi Kwarteng, attempted large unfunded tax cuts in 2022, they did so when the economy was suffering from eye-watering inflation due to a combination of record high gas prices caused by the Russian invasion of Ukraine, plus an already overheating demand on the back of overly easy fiscal and monetary policies during the pandemic. This time around, even though inflation will tick higher over summer due to the Iran war, gas prices are decidedly lower, demand growth is weak, and inflation had been heading lower. Whereas Truss’s policies threatened to make an already bad short-run inflation problem much worse by stimulating demand with tax cuts, this time around, a change in Labour leadership risks further structural damage to growth and an even greater tendency towards inflationary labour market and welfare policies.
Check and balance: The bond market continues to act as an important check and balance on policy mistakes in the UK. Yields are elevated, but this is only an amber warning. Markets want pro-growth, anti-inflation policies and would react badly if the government were to lurch in the other direction under new leadership – probably to such an extent that, as in the Truss episode, any plans for sweeping policy change may never get fully enacted. For this reason, we need to be careful in taking an overly simplistic approach of simply rank-ordering potential leaders in terms of who could be least risky for markets. After all, how often do we see politicians campaign in one direction and then govern in another? Any leader of the Labour government will have to bend to the realities of bond markets if they want to stay in office for long.
What happens next? Exactly what could happen next is anyone's guess, but let me attempt to spell out some possible scenarios:
Orderly voluntary exit (May–August)
- Starmer opts for a dignified departure rather than risk defeat. An announcement in late June or early July would allow nominations in July, hustings in August and a membership ballot by early September.
- Rayner and Streeting, both senior ministers, are best placed to move quickly. Burnham’s path hinges on engineering a safe seat by-election, a logistical hurdle that could delay his entry by four to six weeks.
- The outcome would be a relatively clean transition, preserving some government stability before party conference in autumn.
Formal parliamentary Labour party-triggered contest (July–September)
- If Starmer digs in, rebels coalesce behind a single challenger to clear the 81-MP bar. This route is messier: expect leaks, factional bargaining and public recriminations.
- Rayner’s trade-union and soft-left support gives her an early edge in nominations; Streeting’s ministerial record and centrist appeal could consolidate the right. Burnham again needs a seat fast.
- If Burnham cannot get a seat quickly, Rayner or Miliband would likely run against Streeting in order to give the party an alternative so-called 'soft left' option against Streeting.
- A six-to-eight-week contest would conclude before conference, but visible infighting would further erode authority and sow uncertainty.
Delayed stand-down (September–December)
- Starmer weathers the summer only to buckle after an unpopular Autumn Statement or fresh by-election losses.
- This longer runway gives Burnham time to secure a parliamentary seat and campaign openly, while Rayner and Streeting defend their records in office.
- A less dramatic, possibly uncontested handover becomes likelier.
Starmer hangs on (through December 2026)
- Rebels fail to unite behind one name, or modest polling stabilisation and economic tailwinds give Starmer just enough breathing space.
- Starmer makes limited concessions on policy or reshuffles the Cabinet, limping through conference and the autumn without triggering the 81-MP threshold.
- Burnham may try and fail to win a seat in Parliament – perhaps defeated.
- Authority is badly eroded, but he survives into 2027 with a wounded government still intact. The danger is prolonged drift.
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