The British Prime Minister and Labour Party leader Keir Starmer recently announced his resignation, ending a tenure of less than two years. With the UK set to have its seventh prime minister within a decade, this highlights that the political order has yet to be fully restored after Brexit, and political uncertainty has become a significant risk to the UK’s economy and investment environment. However, the UK stock market has performed better than expected in recent years, benefiting from the global presence of large multinational corporations, high dividend yields, and relatively low valuations, demonstrating a unique investment appeal!
From Landslide to Resignation
Keir Starmer led the Labour Party to an overwhelming victory in 2024, returning to power and ending the Conservative Party’s 14-year rule. At the time, there was widespread expectation that he could reverse years of political turmoil and economic stagnation in the UK, rebuild government credibility, and restore national stability. However, this highly anticipated “Reform and Stability” plan ultimately failed to meet voters’ expectations.
Starmer’s resignation was the result of multiple factors accumulating, including loss of public support, setbacks in governance, and internal party power restructuring. The most direct trigger was the historic defeat Labour Party suffered in the local elections in May this year. Labour Party not only lost over 1,100 local council seats but also experienced significant vote losses in several traditional strongholds.
Following the local election defeat, calls within the Labour Party for reform and leadership change quickly intensified. Several cabinet members resigned one after another, further weakening the government’s stability. The rise of Andy Burnham, Mayor of Greater Manchester, became the final straw that broke Starmer’s government. Burnham, long regarded as a key national figure within Labour with broad appeal, successfully won the Makerfield by-election on June 18, returning to Parliament and significantly boosting his momentum to challenge the party leadership. Starmer’s leadership base rapidly disintegrated, forcing him to announce his resignation as Prime Minister and Labour Party leader just four days later, ending his tenure in office in less than two years.
Apart from political pressure, the Starmer government’s failure to effectively fulfill its campaign promises is also a major reason for the collapse of its support. During the election, Starmer focused on rebuilding public services, improving people’s lives, and restoring government efficiency. However, after taking office, the UK National Health Service (NHS) still faced long-term waiting issues, progress in updating public infrastructure was limited, and the pressure of living costs did not significantly improve. Although inflation has fallen from its peak and real wages have begun to grow again, most families do not feel a noticeable improvement in the economy. When voters realized that the Labour government failed to bring the expected changes, their initially high hopes gradually turned into strong disappointment, which also led to a rapid loss of Starmer’s personal political capital.
In addition, Schale’s leadership ability and governing style have continued to be questioned. During his tenure, controversies such as accepting political donations and expensive gifts emerged, damaging the integrity and honesty image he originally emphasized. At the same time, frequent changes in the Prime Minister’s office staff, repeated policy communication errors, and escalating factional conflicts within the party have all raised doubts about his governance capabilities. For many voters, although Schale successfully led the Labour Party back to power, he failed to demonstrate sufficient political leadership to promote reforms and build consensus, ultimately causing his government to fall into a predicament both internally and externally.
The Post-Brexit Growth Trap
Since the 2016 Brexit referendum, the political situation in the UK has remained highly turbulent. The Brexit controversy has not only reshaped the party landscape but also intensified challenges in government governance and economic reform. With frequent changes in prime ministers, the UK has struggled to maintain a stable and continuous policy direction. Since officially leaving the EU in 2020, the UK’s economic performance has failed to regain the growth momentum seen before Brexit. In recent years, GDP growth rates have remained low, household consumption and business investment have recovered slowly, and the labor market has gradually shown signs of cooling. The market generally expects the UK’s annual GDP growth rate to remain at a low level of around 1% in the coming years. Although the UK has actively signed free trade agreements with New Zealand, Australia, and some Asia-Pacific countries in recent years and joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), most economists believe that the economic benefits brought by these new trade agreements are still insufficient to fully compensate for the loss of economies of scale and market convenience after leaving the European Single Market. While the UK economy has not fallen into a long-term recession due to Brexit, most studies indicate that Brexit has reduced the UK’s long-term growth potential. Key challenges currently facing the UK economy include reduced business investment, stagnant productivity growth, and increased trade frictions.
According to the latest research by the U.S. National Bureau of Economic Research (NBER), compared to the scenario of remaining in the EU, Brexit has reduced the UK’s Gross Domestic Product (GDP) in 2025 by approximately 6% to 8%, while business investment has declined by about 12% to 18%. The study points out that the long-term policy uncertainty following Brexit has weakened companies’ willingness to expand. Additionally, the newly introduced customs, clearance, and compliance procedures with the EU have increased cross-border operating costs, causing greater impacts on export-oriented and high-productivity firms. The UK’s Office for Budget Responsibility (OBR) similarly offers a pessimistic estimate, projecting that Brexit will reduce the UK’s long-term productivity level by about 4% and lead to a contraction of approximately 15% in the scale of import and export trade with the EU compared to previous trends. The UK’s National Institute of Economic and Social Research (NIESR) estimates that by 2035, the negative impact of Brexit on the UK economy will further accumulate, with per capita GDP potentially being 5% to 6% lower than in the scenario of remaining in the EU.
The FTSE 100 Paradox
In recent years, the UK economy has faced multiple challenges, but the performance of the UK stock market has significantly exceeded market expectations. The FTSE 100 index has even reached new highs. This is mainly due to the unique industrial structure and corporate composition of the UK stock market. Unlike the US stock market, which is highly concentrated in the technology sector, the UK stock market’s weight is primarily distributed across traditional industries such as energy, finance, mining, and healthcare. The main constituent stocks of the UK FTSE 100 index are mostly global multinational corporations, including Shell, BP, HSBC, AstraZeneca, Unilever, and Rio Tinto. These companies operate worldwide, with their revenues and profits highly diversified across overseas markets, making their dependence on the domestic UK economy relatively limited. Additionally, the overall environment of high interest rates and elevated raw material prices in recent years has also been favorable to large UK enterprises.
Investment Outlook and Equity UK Performance
In addition, the long-term average dividend yield of the UK’s FTSE 100 index is maintained at around 3.5% to 5%, which offers a more prominent income advantage compared to the US stock market, which is dominated by growth-oriented technology companies. The UK stock market focuses on high cash flow industries such as energy, finance, healthcare, and raw materials. Coupled with relatively lower valuations and dividend yield advantages, related funds have still generated good investment results in recent years. According to Lipper statistics, there are currently four registered UK equity funds available for sale domestically in Taiwan. As of July 14 this year, the average year-to-date return was 1.1%, the average return over the past year reached 10.8%, and the average return over the past three years was 34.7%. Although UK stocks may lack the high-speed growth themes of US tech stocks, their characteristics of low valuation, high dividends, and an industry structure weighted toward value stocks still hold unique allocation value. In a global investment portfolio, the UK market can serve as an important satellite allocation alongside core growth assets. This not only helps diversify investment risk but also reduces reliance on a single technology sector and high-valuation markets, enhancing the overall portfolio’s stability and resilience.
Figure 1: Performance of Equity UK
Source：LSEG Lipper, as of 2026/7/14, in TWD
