UK Shares Fall Amid Burnham Leadership Threat and Rising Oil Prices
Market Reaction to Political and Economic Uncertainty
Political Turmoil: Burnham's Challenge to Starmer
May 15 (Reuters) - UK shares were set to snap a two-day winning streak on Friday as investors weighed a possible leadership challenge to Prime Minister Keir Starmer from Greater Manchester Mayor Andy Burnham, while also worrying about inflation risks.
Burnham said on Thursday he would seek to contest a parliamentary seat becoming vacant after a colleague's decision to stand down, potentially paving the way to challenge Starmer.
Investors worry that Burnham's "business friendly socialism" could lead to more spending and borrowing by the government, straining Britain's finances at a time when it is already under pressure.
Uncertainty and Market Sentiment
"A process involving Burnham promises to be more protracted and 'noisy', thereby prolonging and exacerbating the uncertainty about the political situation in the UK," said AJ Bell investment director Russ Mould.
The blue-chip FTSE 100 index fell 1.20% as of 10:58 am GMT, while the midcap FTSE 250 dropped 1.22%.
Labour Party Leadership Struggles
Starmer has been struggling to hold on to power after the Labour Party's poor performance in the local elections last week. Wes Streeting, who quit as health minister on Thursday, is also expected to run against Starmer if a formal contest begins.
Global Factors Impacting UK Markets
Middle East Tensions and Oil Prices
Separately, investors were spooked by the prospect of escalation in the Middle East conflict after U.S. President Donald Trump said his patience with Iran was running out.
Oil prices rose, with Brent crude futures rising 2.61% to $108.49 a barrel. As an oil importer, the UK faces the risk of higher inflation if disruption in the Strait of Hormuz persists and oil prices stay elevated.
US-China Relations and Market Outlook
The highly anticipated meeting between Trump and China's President Xi Jinping also produced no major breakthroughs on resolving the war.
"Markets didn't hear enough from Beijing to turn more optimistic on the Gulf," said Francesco Pesole, FX strategist at ING.
Sector Performance and Notable Movers
Declines in Miners and Utilities
Shares of metal miners fell 5.00%, while utilities dropped 4.88%.
3i Group Leads Gainers
3i Group was the biggest gainer on the FTSE 100, rebounding 5.40% after a 12.76% drop a day earlier.
(Reporting by Niket Nishant in Bengaluru; Editing by Tasim Zahid)
