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Sir Keir Starmer’s Cabinet has come together to publicly back him, and he seems to have faced down any immediate threat of a coup. But given the volatility in Westminster, it’s not unreasonable to ask: how would the markets react to Angela Rayner in Downing Street?

There’s an obvious one-word answer: “badly”.

We had a glimpse in the past few days of the fears that investors hold should a more left-wing leader replace Starmer. At the end of January, ahead of the latest round of revelations from the Epstein files, the pound was trading at $1.38. Then a week ago, as fears that Starmer would be pushed out mounted, it fell to $1.35. Now, as his position has been stabilised, it has recovered to $1.37.

Much the same happened on the Government bond markets. The yield on the benchmark 10-year gilts was close to 4.5 per cent at the beginning of the month. It pushed up to over 4.6 per cent in trading both on Thursday last week and on Monday ahead of Starmer’s crucial speech to Labour backbenchers. Now it has fallen back to 4.5 per cent.

These are little twitches. They reflect the fact that while the global investors that drive the markets are not particularly keen on the policies of the present Prime Minister and Chancellor, they fear something worse is around the corner. Already, the UK Government has to pay a higher rate of interest to fund the national debt compared to that of any other major economy. For most of the time under the previous Tory government we were paying less than the US, and that relationship held right through to the summer of 2024 when Labour took over.

Moods change, but right now it does very much look as though whoever replaces Starmer will have a tough time convincing investors that they can run the country’s finances........

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