Adam Ruddle, Chief Investment Officer at LV=,

Facts in this article were correct at the time of writing but may change quickly.

Adam Ruddle, Chief Investment Officer at LV=, comments on Sir Keir Starmer’s resignation and initial market reactions to the change in UK government.

Markets have so far taken Sir Keir Starmer’s resignation largely in stride, as it had been widely telegraphed in the preceding weeks, with sterling, gilts and UK equities showing only modest moves. Focus has already turned to who replaces him, the incoming leadership team’s economic plans, and whether fiscal discipline remains intact. 

Update in brief:

A muted market reaction: Having already fallen in previous weeks, sterling moved only modestly, while gilts and the FTSE were broadly stable following the announcement.

• A focus on new leadership and fiscal policy: Investors are watching closely who replaces Starmer, with Andy Burnham as the current frontrunner.  
• Fiscal discipline matters most: Any perceived weakening of fiscal rules could put pressure on sterling and push gilt yields higher.
• The importance of diversification: Our portfolios and funds are well diversified by region and asset class, helping reduce the impact of isolated moves in UK asset prices. 

What happens now that the Prime Minister has resigned?

The Labour Party has begun the process of appointing a new leader. Until a successor is confirmed, markets are likely to focus less on the resignation itself and more on the policy direction of the incoming leadership team. Andy Burnham is currently seen as the frontrunner. Investors will be watching for any signals on his economic priorities, particularly whether he remains committed to the current fiscal rules and budget discipline.

While he hasn’t revealed too much yet, any reassurance that the incoming government will maintain fiscal credibility may help keep sterling and gilt markets calm. In contrast, any perception of weakening fiscal discipline could put downward pressure on sterling and push gilt yields higher. For investors, the key issue is going to be if the new policymakers can convince markets that the UK’s public finances remain on a stable path.

How has the market reacted so far?

The initial market reaction has been relatively muted, which suggests investors had already priced in much of the political uncertainty ahead of the announcement.

• Sterling: weakened somewhat ahead of the resignation; further movement depends on incoming policy credibility.
• Gilts: broadly stable so far; yields could rise if investors question fiscal discipline.
• UK equities: muted reaction; the FTSE is generally less sensitive to UK domestic policy given the make-up of the market, including its energy and defence bias and companies with diversified international revenues.
• Global assets: UK politics is not expected to be the main driver of global market returns.
• Our portfolio positioning: we remain disciplined, diversified across regions and asset classes and focused on long-term investment drivers rather than short-term political developments.

Why fiscal policy is the key market issue

Fiscal policy is likely to be the main factor shaping investor confidence from here. Markets will be looking for evidence that any new spending commitments are balanced with credible plans for taxation, borrowing and debt management. This matters because UK government finances influence both sterling and gilt yields: if investors believe borrowing could rise without a clear plan to keep debt sustainable, they may demand higher returns to hold UK government bonds, while the pound could come under pressure. A clear commitment to fiscal discipline would therefore be important in helping maintain stability across UK assets.

Are LV’s Smoothed Managed Funds exposed to UK political risk?

Like all diversified investment funds, where investment value can go down as well as up, LV’s Smoothed Managed Funds can be affected by changes in market sentiment, including events linked to UK politics.

However, our asset allocation is not solely dependent on UK markets. Our funds invest across a broad mix of asset classes and regions, which helps reduce the impact of isolated moves in any single market, including sterling, gilts or UK equities. This means that while short-term UK political developments may influence parts of the portfolio, they are not expected to be the main driver of overall performance.

Managing political uncertainty through diversification

Political events can create uncertainty, but they are only one of many factors influencing markets. Our approach is to remain focused on long-term investment drivers rather than making short-term changes in response to individual headlines. By spreading exposure across different regions, asset classes and sources of return, diversification helps portfolios remain more resilient when one market or asset type comes under pressure. Diversification can help reduce the impact of isolated market moves, but it does not remove investment risk or guarantee positive returns.

Based on current market conditions, we do not believe recent political developments warrant significant changes to portfolios but remain vigilant for opportunities. We continue to monitor developments closely with our investment partner, BlackRock, and remain focused on maintaining disciplined, well-diversified portfolios that support long-term investment outcomes for our members.

Resilience of our smoothing mechanism

Periods of political uncertainty can lead to short-term movements in markets, particularly in areas such as sterling, gilts and UK equities. LV’s Smoothed Managed Funds are designed to help reduce the impact of day-to-day market volatility on clients by combining a diversified investment approach with our smoothing mechanism. However, it is important to note smoothing does not prevent losses in long-term falling markets.

Since launch, LV’s Smoothed Managed Fund prices have never fallen by more than 0.20% in a single day*. However, past performance is not a reliable guide to the future. The mechanism uses a backward-looking average of the past six months of underlying fund performance, helping to smooth the effect of short-term market moves and provide clients with a more stable investment experience during periods of uncertainty.

Although unlikely, we may need to suspend smoothing in exceptional circumstances to protect our members and our business. This could happen if the underlying daily fund price fell below 80% of the smoothed price, or in other exceptional circumstances. If this happened, the fund would typically be valued using the underlying price or, at our discretion, a daily gradual averaged price. ISA investments would be valued using the underlying price until smoothing is reintroduced.

Supporting your client conversations 

For more information on our asset allocation and investment approach, download our Smoothed Managed Funds Adviser Guide. It provides further detail on how the funds are managed, how diversification is used across regions and asset classes, and how smoothing can support client conversations during periods of market uncertainty.

You can also visit our Adviser Investment Centre for further Smoothed Managed Funds updates, investment commentary and timely market insights.

*Correct as at 23 June 2026