Key insights
- UK political uncertainty is rising as a Labour leadership contest looms, reviving the Brexit debate. While most contenders aren't advocating immediate rejoining of the EU, the renewed focus on Brexit and potential shifts in UK-EU relations could introduce volatility in global markets and indirectly affect US equities through currency fluctuations and trade dynamics.
Investing.com -- Political uncertainty in Westminster has intensified as a clearer path toward a Labour leadership contest emerges, with the Brexit debate returning to the forefront of British politics nearly a decade after the 2016 referendum.
Prime Minister Keir Starmer remains in office, but the landscape shifted Monday when the National Executive Committee approved Andy Burnham’s candidacy for the Makerfield by-election on June 18. Burnham, currently outside Parliament, is viewed as a potential "soft left" challenger, and his return to Westminster could trigger a leadership contest, according to UBS economist Maelle Quillevere.
Main contenders are expected to include Burnham, centrist Wes Streeting, outsider Al Carns, and other left-wing figures such as Angela Rayner or Ed Miliband. However, Burnham’s victory in Makerfield is not assured, as Reform UK has shown strong support in recent local elections in the constituency.
The campaign has already begun taking shape around the Brexit question. Streeting has called Brexit a "catastrophic mistake" and argued Britain should ultimately rejoin the EU.
Burnham, while previously stating he would like the UK back in the EU within his lifetime, has adopted a more cautious tone while campaigning in the heavily Leave-voting constituency, saying he is "not advocating" rejoining in the near term and that the 2016 vote must be respected.
The renewed focus on Brexit reflects a shift in public sentiment. Polling now shows a majority of Britons would support rejoining the EU, while an even larger share favor closer alignment without full membership, which aligns with current government policy.
Despite the rhetoric, the policy gaps between the main contenders remain narrow. Neither Streeting nor Burnham are advocating immediate rejoining, and Labour’s broader position remains focused on improving ties and deepening cooperation with the EU, while stopping short of commitments to rejoin or re-enter the single market or customs union.
Rejoining the EU would require unanimous agreement from member states and extensive negotiations across multiple policy areas, a process that would take years. Terms would likely be less favorable than before, with previous opt-outs potentially unavailable and deeper integration required.
UBS maintains that the Brexit rhetoric does little to change the outlook for the UK economy or assets. Near-term volatility is more likely to be driven by the domestic fiscal trajectory and external developments such as tensions in the Middle East.