Starmer has delivered some key wins for the UK recently, so why is he so unpopular?

U.K. Prime Minister Keir Starmer faces plummeting approval ratings despite securing key trade deals with the U.S., India, and the EU, as a recent YouGov poll shows unfavorable views among 69% of voters, including half of Labour voters. This decline is attributed to persistent cost-of-living pressures driven by a higher-than-expected 3.5% inflation rate in April and rising utility costs, coupled with concerns over Labour-led tax rises and perceived 'anti-growth' measures impacting businesses, overshadowing the potential long-term benefits of the new trade agreements.

Analysis

U.K. Prime Minister Keir Starmer's administration, despite securing significant trade deals with the U.S., India, and the European Union aimed at boosting the British economy, faces a sharp decline in public approval. A mid-May YouGov poll revealed that 69% of voters hold an unfavorable view of Starmer, a sentiment echoed by 50% of Labour voters, marking a 17-point increase in disapproval within this group since mid-April. This disconnect appears rooted in pressing domestic concerns, primarily the cost-of-living crisis, with annual inflation reaching a higher-than-expected 3.5% in April, up from 2.6% in March. Specific pressures include a 6.7% year-over-year increase in electricity, gas, and other fuel prices, and a substantial 26.1% monthly hike in water and sewerage costs in April, the largest since February 1988. Businesses are also contending with a higher tax burden from the "Autumn Budget" and other measures perceived as "anti-growth," such as immigration limits affecting key sectors, a national minimum wage rise, and workers' rights reforms. While Kallum Pickering of Peel Hunt rates the government's domestic policy a "C-minus" due to these anti-growth measures disrupting bond markets, he acknowledges a "fairly good job" on foreign policy, with trade deals containing downside risks and signaling openness. Conversely, C.S. Venkatakrishnan, CEO of Barclays (BCS), views the government as "absolutely on track" with its trade achievements and efforts to repair EU relations, noting that while inflationary pressures are evident, consumer distress is not yet apparent due to prudent financial management by individuals. However, strategists like Bill Blain point to Starmer's perceived lack of charisma and a weak cabinet as contributing to the negative public perception, suggesting the narrative of fiscal prudence has backfired, and there's a rising risk of internal party dissent.

Key Decisions for Investors

• Investors should closely monitor U.K. inflation data, consumer confidence, and retail sales figures as key indicators of domestic economic health and their potential impact on market sentiment.
• Consider the differential impact of current U.K. policies: while new trade deals may offer long-term benefits for internationally exposed sectors, domestic-facing businesses, particularly SMEs, could face headwinds from rising costs, tax changes, and labor reforms.
• Factor in the heightened political risk associated with Prime Minister Starmer's declining popularity and potential for policy adjustments or instability, which could affect U.K. asset valuations.
• For entities like Barclays (BCS), whose leadership expressed a positive outlook on government strategy, assess their specific resilience to domestic cost pressures against potential gains from a growth-oriented agenda and improved international trade.