Starmer on brink of quitting as UK prime minister

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0:34Good morning from the Financial Times. Today is Monday, June 22nd, and this is your FT News Briefing. Keir Starmer may soon be out at number 10, and we'll have the latest on crunch talks between the U.S. and Iran. Plus, less communication from the Fed chair could lead to more volatility on Wall Street. This is what Walsh wants in a way is for markets to speculate. I'm Victoria Craig, and here's the news you need to start your day.

1:13Keir Starmer's days as Britain's prime minister may be numbered. His allies told the FT he is on the brink of resigning, a move that could come as early as today. Colleagues say they expect Starmer to announce a, quote, orderly transition plan after he spent the weekend agonizing over the decision. I'm joined now by Lucy Fisher, our Whitehall editor and Political Fix podcast host. Hi, Lucy. Hi, Beth. All right, so the context here I think is really important because this decision comes after a critical by-election in the north of England where Greater Manchester Mayor Andy Burnham won a seismic victory on Thursday for an open parliament seat.

1:50And that has now set off a chain reaction in number 10. So just bring us up to speed here. What is the very latest? That's right. And we shouldn't forget that Andy Burnham's seismic victory in Makerfields is really important coming in the wake of Labour, facing an absolute drubbing in the elections only last month in Scotland, in Wales and in English councils. And in fact, Nigel Farage's Reform UK had swept the board. So Andy Burnham winning here has brought a lot of relief to Labour MPs who've been gripped by a sense of panic that they are going to be routed at the next general election. And Burnham's argument is, look, I've shown locally that I can take on Farage and beat reform.

2:32Now let me lead the party and I can do it nationally. So things are moving quickly. We know that cabinet ministers have privately over the weekend urged Starmer to think about his position. So we're all bracing to see whether there is a podium erected in Downing Street today or later this week, at which Starmer potentially announces his plan to resign and sets out a timetable for that. This is so interesting, Lucy, because before that by-election in Makerfield, Starmer insisted that he would stand in a leadership contest if it came to that. What has changed over the past few days? It's a really good question.

3:09I think that tone of defiance and stubbornness speaks to something in his character. And beyond that, he has very, very difficult relations with Andy Burnham. So there's barely anyone less likely that Starmer would want to hand the keys of Downing Street to. And on top of all that, you know, I think he feels very aggrieved, his friends tell me, that he sees it being the case that he's not given enough credit by his party for winning this stunning majority less than two years ago. And in a sense, if you step back, I think it's easy to understand he's in a state of shock in a way at just how quickly things have unravelled in less than 24 months.

3:51So I think he was looking to hang on in. He may yet still attempt to do that, but I think that the political gravity is becoming clear to him and perhaps even some of his friends and loyalists now are telling him to read the room. So what happens from here then? How quickly could we see someone, be it Burnham or otherwise, launch a leadership contest? Well, there are various ways this could go. It does feel that there is so much political energy behind Andy Burnham that it's difficult to see anyone else overtaking him in the race to become the next prime minister. but there are supporters of for example Wes Streeting the former health secretary who resigned last month and who is more to the right of the party who want there to be a contest and above that there are people that don't back any particular horse in the race but think it's right that anyone who wants to put themselves up for the job of being prime minister and party leader should have a little bit more scrutiny of their ideas should have their policy platform tested in the milieu of a contest.

4:56So it's not a done deal, but it's certainly an option on the table that things could move fairly quickly within weeks. It's worth stressing that there's still some debate in Team Burnham about whether it would be beneficial to wait until the autumn, perhaps September, the party conference for the baton to be handed over, because they're aware that that first 100-day sprint in government is all important to gain momentum. And having just that little extra breathing room in order to firm up their policy platform would be helpful. Well, it sounds like we've got another wild few weeks ahead of us in Westminster.

5:32Lucy Fisher, our Whitehall editor, thanks so much for your time. Thanks for having me, Victoria.

5:42The U.S. and Iran held crunch talks in Switzerland on Sunday aimed at reaching a permanent end to the war. As the two adversaries were locked in discussions, President Donald Trump threatened on social media to, quote, hit Iran very hard again. Tehran dismissed the post, saying Iran does not take the U.S.'s threats seriously. The two sides were looking to build on an interim deal reached last week, which paused the war and reopened the Strait of Hormuz for 60 days. But even before the talks in Switzerland, the agreement was on shaky ground. That's because Israel repeatedly struck Lebanon in the days after the U.S.

6:20and Iran agreed to the pause. Iran has consistently demanded that Beirut must be included in any ceasefire deal. This all comes as investors are pouring billions of dollars into the defense sector, not just because of the conflict between the U.S. and Iran, but also Russia's war in Ukraine. Defense technology startups have raised more than$12 billion from venture capital funds this year alone. That's almost double what the sector raised by this point last year. The conflicts are exposing demand for next-generation weapons like drones, autonomous vessels, even battlefield AI.

7:02It's been less than a week since Kevin Worscht chaired his first Federal Reserve meeting, but already major investors are warning his plans to slim down communications with Wall Street risks heightening volatility in the world's most important bond market. Claire Jones is our U.S. economics editor, and she joins me now to chat about this. Hi, Claire. Hi, Victoria. So just walk us through this. What exactly are investors concerned about?

7:53row it back last week. And more is expected in the pipeline. And that's what's got some investors concerned, really. What was the market reaction from that slimmed down guidance? We saw Walsh not submit a dot to the dot plots, which outline the future path for U.S. interest rates. We also saw a truncated statement with no steer on whether or not the Fed expects the next moving interest rates to be up or down. And what that led to in the markets were bets that we'd see more interest rate hikes in the coming months. We saw two-year yields, which are very sensitive to monetary policy, move up quite dramatically to their highest level in more than a year.

8:42Okay, so all of this means obviously less explicit clues from the Fed itself when it comes to what it's thinking on the path for monetary policy. But that doesn't always stop markets from speculating. So where else might investors look for signals about what the Fed might want to do in the future? Well, indeed, and this is what Walsh wants in a way is for markets to speculate. What he argued for in the press conference is that we've entered this world where because central banks are offering so many clues as to what comes next, Wall Street is trying to second guess the Fed rather than come up with its own judgment on what should happen to interest rates based on reading the economic data.

9:29He wants to see markets take a more proactive approach in terms of reacting to the economic news and judging what that means the best course for monetary policy is. And of course, this isn't new. This is how central banks used to communicate, right? We didn't always have such clear roadmaps to what monetary policy might be. But have there been any downsides to that very explicit, clear communication? I think you're absolutely right. I mean, we're returning to the sort of world that we had before the financial crisis, There's something more akin to the era of Alan Greenspan, whom Walsh has said he's a fan of.

10:10The issue is, is that we've now had decades in which the market has had these very clear signals. We've had a generation of people in financial markets who are used to this communication from the Fed. And the issue is, is that now if you take that away and reintroduce this element of surprise, you're likely to get more volatility from people who just don't really know how to read the Fed without these very explicit clues. Now, there are people who do know how to read the Fed without those explicit clues. Who is it that might benefit from this change in communication policy, Claire? Well, let's say people who understand the Fed very well will be able to have a better sense of what these quote-unquote surprises are likely to be.

10:58I'd imagine that hedge funds who are very adept at reading the Fed are going to be able to find good ways to trade this and perhaps make a lot of money out of this volatility. If you have a sense of what is dubbed in central bank parlance as the Fed's reaction function, you don't necessarily need to hear from Fed officials every five minutes to have a pretty good idea of what's going to come next to interest rates. You can look at the economic data, which is publicly released, and get a sense from that of what the Fed's likely to do. So lots more parsing and reading between the lines. Claire Jones, our U.S.

11:37economics editor, thanks so much for breaking this down. No problem. Pleasure.

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