Prime Minister uncertainty weighing on investor sentiment

The ongoing uncertainty around the position of Prime Minister in the UK is weighing on investor sentiment, with concerns about the country’s economic and political outlook growing, according to Rathbones.

While the most likely candidate, Andy Burham, has been setting out his economic plans for the UK, 42 per cent of investors saw economic growth as their greatest concern for UK markets, closely followed by political uncertainty (41 per cent).

These worries ranked well ahead of interest rates and inflation (11 per cent), despite continuing cost-of-living pressures sparked by rising oil and energy prices.

"Recent conversations with clients have been dominated by questions about what the race for No.10 could mean for their portfolios,” said Rathbones senior investment director, Elizabeth Hart.

“They are less concerned about day-to-day political drama and more focused on the potential implications for capital gains tax. Taxation more broadly, pensions and other areas of financial planning.”

Hart argued that while political uncertainty can create short-term market volatility, it was important not to lose sight of the bigger picture.

“The strongest defence against uncertainty is diversification,” she continued. “By spreading investments across different regions, sectors and asset classes, investors can reduce their reliance on any single economy, market or political outcome.”

Looking more broadly at global markets, geopolitics were seen as the biggest concern for investors over the next 12 months, cited by 46 per cent of respondents.

This was followed by worries about an economic slowdown or recession (23 per cent) and market valuations, especially in AI and technology stocks (20 per cent).

"Investors are right to keep a close eye on geopolitical developments,” commented Rathbones head of market analysis, John Wyn-Evans.

“Events in the Middle East and ongoing trade tensions have the potential to create periods of volatility, particularly if they disrupt global supply chains or fuel inflationary pressures.

“However, history shows that markets can often prove more resilient than many expect, even during periods of heightened uncertainty.

"At present, corporate earnings remain strong and the global economy continues to grow, albeit at a slower pace in some regions.

“While geopolitical risks warrant careful monitoring, investors should avoid allowing headlines alone to drive investment decisions.

“Maintaining a diversified portfolio and focusing on long-term objectives remains the most effective way to navigate uncertain market conditions."

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