Rabobank’s Stefan Koopman highlights growing political risks in the United Kingdom after the Gorton and Denton by-election, where Labour lost heavily to the Green Party and Reform UK. He notes this result intensifies pressure on Keir Starmer’s leadership ahead of May’s regional elections, with markets likely to prefer a Blair-style figure such as Wes Streeting over a left-wing challenger.

Labour setbacks unsettle UK political outlook

"The by-election barely shifts the balance in Westminster because Labour still holds a very large majority. Politically, however, the result matters a great deal. It reflects a clear national pattern in which Labour is being squeezed from the left by the Greens and from the right by Reform UK."

"This is not new, but this dynamic does increase the pressure on Starmer’s already fragile position. It also increases the risk that Labour is pushed further to the left at exactly the moment when the party is struggling to manage broader economic and political disruption across the country."

"The next test for Starmer comes in early May with the regional elections. Labour risks another heavy defeat, which could trigger a leadership challenge. Markets will not welcome the uncertainty, especially if a strong challenger emerges from the left of the party, such as Angela Rayner."

"Wes Streeting, with his Blair-aligned profile, would be the preference of financial markets."

"Questions about Starmer’s judgment will surface again today. Andy Burnham, the “King of the North,” had wanted to run as Labour’s candidate in this by-election, but Starmer blocked him because he didn’t want to invite his popular rival to Westminster."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)