Swinney criticises Starmer’s ‘vacuum of leadership’ amid Mandelson row

This is less about one appointment and more about whether Starmer can preserve the core asset of a first-year government: procedural competence. When leadership credibility starts leaking through governance failures, the market impact is usually not immediate policy reversal but a slower erosion of legislative authority, making every subsequent whip battle, reshuffle, and budget decision more expensive in political capital. For UK domestic assets, that raises the odds of policy drift rather than a clean ideological shift, which is usually the worst mix for both public-sector execution and sentiment-sensitive UK cyclicals.

The second-order effect is on Scottish Labour’s electoral math and, by extension, the probability of post-election constitutional noise. If Labour underperforms in Scotland, it reduces the cushion Starmer needs to govern comfortably at Westminster and increases the risk that internal party management becomes the dominant agenda item into summer. That tends to favor parties and assets tied to instability narratives: UK defensive equities can outperform on risk-off flows, while domestic mid/small caps with high regulatory exposure usually underperform as investors discount slower decision-making and more headline-driven policymaking.

The contrarian point: this may be more damaging to Starmer personally than to the government’s medium-term fiscal trajectory. If the market concludes the issue is one of reputational optics rather than a policy rupture, the selloff in UK political credibility could fade within days, especially if the administration pivots to a cleaner governance message and stops making the story about process. The real tail risk is not resignation; it is a prolonged drip of governance controversies that depresses business confidence into the autumn budget cycle.