The victory of Labor’s Keir Starmer in 2024 with an overwhelming majority seemed to put an end to almost a decade of permanent instability in the United Kingdom unleashed by the Brexit referendum of 2016. But that has been a mirage. A year and a half after winning 63% of the seats in the British parliament with just 33% of the votes, Starmer is sinking in the polls, his own party is on the brink of rebellion, the economy remains stagnant and the political crisis has only worsened.. And the bonus, which had been relaxed after the last budgets, has risen again to the levels of last November. The hamster wheel in which the country is trapped shows no signs of stopping.
The United Kingdom continues to pay for the populist wave that Brexit unleashed and that It has only made the situation worse and impoverished the country. since then. A nation whose prime ministers lasted decades in office is on its way to becoming that Italy that overthrew its government every six months. “It is not good for the country to change prime minister every 18 months or every two years,” Labor Minister Pat McFadden told Sky News on Sunday. “It is generating chaos and economic, political and reputational uncertainty around the world.” If Starmer lasts in office until July, he will only have tied in seniority with his predecessor, Rishi Sunak. Right now, the bets are not in his favor, after a scandal has shaken the Government and left Starmer on the edge of the cliff.
The latest chapter of the infinite crisis has come from the so-called ‘Epstein Papers’, the documents that the US Government is partially publishing after the US Congress ordered their complete declassification. Although Donald Trump’s Executive refuses to publish them all, as it should have done two months ago, it has released millions of files to the web. AND, together with the former Prince Andrew, several of them included references to Peter Mandelson, United Kingdom ambassador in Washingtonhistorical Labor figure, parliamentarian in the House of Lords and known as the “Lord of Darkness” for his handling of the ‘dark arts’ of politics.
The scandal has shaken the country. Starmer fired Mandelson in October and last week demanded his resignation from the Lords. His departure has taken away his chief of staff, Morgan McSweeney.who was the one who suggested replacing the previous ambassador to the US, career diplomat Karen Pierce, and putting in her place a politician capable of using his ‘dark arts’ to negotiate with Trump. As if that were not enough, this morning Downing Street’s head of communications, Tim Allen, resigned.
But the crisis does not end with Mandelson. The party barons are targeting Starmer for this scandal and his weak management. The leader of the Scottish Labor Party, Anas Sarwar, has asked for his resignation today. Two weeks ago, the mayor of Manchester, Andy Burnham, asked to be able to stand in a special election for MP to challenge Starmer for the leadership of the party, although the party leadership prohibited him from doing so. And there are more candidates for an alternative candidacy: the Minister of Health, Wes Streeting; the former Minister of Housing and former Deputy Prime Minister, Angela Rayner; and the Energy Minister and former party leader between 2010 and 2015, Ed Miliband.
Fear of the day after
All this chaos has rescued the worst memories of Liz Truss’s years of chaos. Starmer’s Economy Minister, Rachel Reeves, has been insisting from day one on giving an image of fiscal seriousness and stability to avoid the shocks that dogged the last conservative governments. Despite numerous turns and a communicative chaos that is already a trademark of this Governmentthe budgets themselves have satisfied the markets. The fear is that whoever comes next will break with Starmer’s self-imposed fiscal control and launch public spending without control. Political tension has pushed 10-year bonds to 4.60%, their November highs, and has led the pound to fall 0.7% against the euro.
The root of the problem is that the economy has been stagnant for years.. Brexit has been a very hard economic blow and successive governments, both ‘Tories’ and Labor, Taxes have been raised to their highest levels since World War II.. But that has not been enough to solve the crisis in public services: health, education, roads, social services and care for the elderly have undergone a decade of very harsh cuts. Many of its large municipalities are bankrupt. Y his high-speed train project has almost become a joke after decades of delays, a project that shrinks every few years and stratospheric costs. Public debt is controlled, yes, but at 105%, an acceptable level compared to other European countries such as France or Italy, but which leaves little room for maneuver. The situation is reminiscent of that football saying on the blanket: “If you cover your feet, you uncover your head, and if you cover your head, you uncover your feet.“The markets fear that the next prime minister will change his mind and prefer to strongly increase investment in public services at the expense of uncovering budgetary control.
Bloomberg macro strategist Ven Ram warned today that “Political risk premium added back to UK assetsonce again thwarting a possible rush to long-term bonds. The concern in the markets is that any successor will be more fiscally lax,” he warns. Even so, the memory of the ‘Truss Moment’, with the unfortunate ‘mini-budget’ that shot up the bonds and forced the Bank of England to intervene to avoid a major crisis, remains alive in the minds of all politicians. Eric Lonergan, head of discretionary macroeconomics at Calibrate Partner, says that “There is a broad political consensus that is terrified of the bond market. Even after Starmer, I foresee a restrictive and prudent fiscal policy, but also volatility in between.”
The key, however, is that Starmer’s great weakness is his left, a flank that he has left practically open to concentrate on his right. McSweeney has pushed Starmer to abandon much of Labour’s traditional program and take a sharp turn to the right to address voters of Reform UK, the anti-immigration party of populist Nigel Farage, the architect of Brexit. This movement has left him in no man’s land: voters on the populist right have not given the Government any credit for its immigration restrictions or its defense of leaving the EU; But its left-wing voters have abandoned the party en masse towards other progressives, such as the Liberals or the Greens, who support rapprochement with the EU with a view to a complete return and a more open immigration policy. The party’s own deputies have rebelled several times against Starmer, forcing him to maintain aid for people with disabilities or expand aid to poor families, which until now were limited to those with a maximum of two children. Of course, McSweeney’s policy of angering his own voters has produced results, although perhaps not what he expected: Starmer wanders through the polls, with a -50 rating (15% approve, 65% reject) and the Labor Party suffers with less than 20% voting intention. His figures are even worse than those of Truss, until now the ‘gold standard’ of political failures in the United Kingdom.
There are green shoots on the horizon… but still distant
Starmer’s best hope is the signs of ‘green shoots’ that are already being seen in the economy. Berenberg, in a note to investors, pointed out today that “if inflation falls again to 2% year-on-year, as we predict, we suspect that the Bank of England will lower the interest rate to 3%. This would maintain the upward trend in bank credit growth and stabilize employment.” Thus, according to his calculations, GDP would go from growing 0.9% in 2026 to “1.6% in 2027 and 1.7% in 2028”. An economic rebound just in time for the next general elections, which would allow the Government to launch an extra pre-election spending package and take advantage of the ‘joy’ among families.
However, Its greatest threat has a name and surname: the municipal and regional elections of May 7. The polls point to an electoral collapse of Labor in its historic fiefdom, Wales, where they could lose the autonomous Government for the first time since its creation and be relegated to third or even fourth place, exchanging positions with the left-wing nationalists of Plaid Cymru, who are taking all their votes. And in Scotland, where they were the leading force in the 2024 general elections after a decade in the desert, polls suggest that they would sink again at the expense of the Scottish nationalists (SNP), the Greens and the Liberals. Added to this are numerous town councils in England, where they risk losing hundreds of councilors out of the 2,000 they defend.
A Labor disaster in the May elections would open the door to a greater rebellion in the partyfaced with the need to do something to stop the bleeding of support. But several deputies wonder why they have to wait for such a catastrophe to change the prime minister instead of doing so before, in the hope that a clear sign of a political turn will allow them to rescue part of their support in the elections.
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