King Charles sets out fragile government’s agenda amid gilt sell-off

Britain’s King Charles III set out the agenda of a fragile U.K. government on Wednesday after Prime Minister Keir Starmer faced down calls for his resignation that sparked heavy selling pressure on gilts in the previous session.

The State Opening of Parliament and King’s Speech, a grand affair in which the monarch presents the government’s legislative agenda for the next parliamentary period, took place after Starmer’s political leadership remained under threat following the political fallout of the ruling Labour Party’s poor performance in local elections last week.

Starmer appears to have seen off any immediate leadership challenge for now, and will hope that today’s pomp, pageantry and policy agenda can shift attention away from the current crisis.

That doesn’t mean the leadership threat has gone away. Ahead of King’s address in the House of Lords Wednesday morning, Starmer had a brief meeting, reportedly lasting only 17 minutes, with one of his main leadership rivals, Wes Streeting.

Streeting — the U.K’s health secretary — had reportedly asked to meet privately with Starmer on Tuesday but had been refused. That came after a crunch cabinet meeting in which Starmer vowed to keep leading the Labour Party, despite over 80 lawmakers (at that point) calling on the PM to resign.

Markets had their own say on the political crisis in the U.K., which has seen four prime ministers in the past four years; yields on U.K. government bonds, known as gilts, saw double-digit gains on Tuesday as investors feared that any leadership would lead to a loosening of the fiscal discipline implemented by Starmer’s Chancellor Rachel Reeves.

On Wednesday, as Starmer’s position in office look more assured, yields fell 2 to 6 basis points with the interest rate on the benchmark 10-year gilt hovering around 5.067%.

Jim O’Neill, former chairman of Goldman Sachs Asset Management and former U.K. treasury minister, told CNBC on Wednesday that the U.K. had to start being a “bit more adult.”

“It shocks me that voters are treating the leadership of the country like some kind of gameshow where you have a few months of the year and if we don’t like you you’re out, as evidenced by the scale of support for Reform in the council elections,” he told CNBC’s “Squawk Box Europe.”

“It doesn’t look to me that any of these voters seem to be concerned about the lack of growth or stability of financial markets …on top of that, the idea that, constitutionally, some ambitious person can just come in and replace the current PM … I think that is a really dangerous thing to do, given the fragility of our current electoral status,” he added.

Neil Wilson, Saxo UK investor strategist, said today’s King’s Speech may offer Starmer a reprieve, but might not be a stay of execution.

“The King’s Speech may see a pause in the plotting, but bond markets are clearly on edge, and I would not be surprised if Cabinet resignations begin once the King is finished, or tomorrow morning.” 

“Labour unions are calling for Starmer to not lead the party into the next election. The PM has just held a meeting with one of the main would-be leaders, Wes Streeting. As of send time no one has the numbers to challenge Starmer yet,” he noted in emailed comments.

The PM appeared to throw down the gauntlet to potential challengers on Tuesday, but none have emerged publicly so far. Support for the PM has also emerged; as of Wednesday morning, 93 Labour MPs have called on Starmer to resign but 158 have said they back him to remain as leader.

One saving grace for Starmer is that while a significant cohort of Labour lawmakers agree that they want a new party leader and PM, there is no overall agreement as to who they want to replace him; while some back Streeting, others back former Deputy PM Angela Rayner or Greater Manchester Mayor Andy Burnham, who would need to become an MP before mounting a leadership challenge.

The King’s Speech sees the monarch deliver an outline of the government’s agenda for the year ahead to parliament.

The address is written by the government rather than the monarch and, this year, it gives Downing Street an opportunity to reset the political narrative at a time when swathes of the electorate have voiced dissatisfaction with the slow pace of change and improvements in the U.K.

While higher inflation and dampened economic growth linked to the Iran and Ukraine wars are largely out of the government’s control, the Labour leadership has come under fire for failing to get a grip on pressing domestic matters, particularly illegal immigration and cost of living pressures.

The swell of political dissatisfaction with Starmer from many of his colleagues, and what appears to be his narrow escape from an immediate leadership challenge, provides the impetus for the government to revamp its legislative agenda.

Ahead of the King’s Speech this year, the government said it would include an “ambitious program” to “strengthen public services, reform the state and reverse decline.”

“A stronger, fairer country that can weather the storm of global shocks and restore hope will be the focus of the new legislation set out in The King’s Speech today,” the government noted.

Over 35 bills and draft bills would be unveiled in the speech, it added, which were designed to strengthen the UK’s foundations through measures to bolster economic, energy and national security, as well as the country’s relationship with the European Union.