7th July 2026

BNP Paribas: Monthly Market Views: Political transitions and market caution

UK leadership change

UK investors face another change in political leadership. This could also mean a shift in economic policy with a focus on stimulating growth and addressing the country’s regional inequalities. Prime Minister Keir Starmer’s would-be successor, Andy Burnham, has pledged to respect the government’s fiscal rules. Gilt market credibility needs to be a key pillar of economic stability. Yields are lower since the PM’s resignation. However, two developments will be vital to market stability: cabinet appointments (particularly the choice of Chancellor) and details on Burnham’s policy agenda.

Of critical importance will be how increased infrastructure investment, as part of a pro-growth agenda, can be consistent with keeping borrowing within the fiscal rules. Given current yields, and with the Bank of England seemingly on hold, gilts look attractive. The UK stock market could also benefit from any shift in policy. While the Brexit vote’s 10-year anniversary has been met with analysis of the relative economic loss the UK has suffered since, the FTSE 350 index sits on a 12-month price-earnings ratio of just 60% of that of the S&P 500 and below its average level in the period since 2010. Any improved growth outlook could be rewarding to investors.

Strong earnings, uncertain markets  

Despite a decline in oil prices of around 30% from June’s peak, equity markets have seen little relief. Technology stocks have wobbled again as worries about valuations and the outlook for earnings resurface. Non-tech indices have gained only modestly despite encouraging economic data. The US labour market has had three months in a row of steady job creation, while Purchasing Managers’ Indices point to resilient manufacturing activity in the US, Europe and Japan, and an expanding services sector in the US and Japan.

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