The FTSE 100 closed higher on Monday as Prime Minister Sir Keir Starmer confirmed his resignation, while diplomatic progress between the US and Iran also lifted sentiment.
The FTSE 100 ended the session up 74.58 points, or 0.7%, closing at 10,437.85, while the FTSE 250 ended marginally lower at 23,197.01.
Sir Keir announced his departure following months of mounting pressure from within the Labour Party, just two years after his landslide 2024 general election victory.
A clearly emotional Sir Keir conceded he had lost the support of his Labour Party MPs, and asked the National Executive Committee to set out a timetable for his replacement.
Nominations for the Labour leadership are due to open on July 9 and close on July 16, with Andy Burnham, who won last week’s Makerfield by-election, the frontrunner to succeed him.
If Burnham goes unchallenged, he is expected to become the country’s seventh prime minister in a decade as early as July 17 or 18.
Wes Streeting ruled himself out of the leadership race, raising speculation he could be in line to become the next chancellor of the exchequer.
Deutsche Bank Research analyst Shreyas Gopal said who becomes the next chancellor will likely be the next focus for financial markets, adding that Mr Streeting would be seen as among the more market-friendly candidates.
Sterling strengthened on the news, trading at 1.3254 dollars on Monday afternoon, up from 1.3227 dollars on Friday, while against the euro it firmed to 1.1587 from 1.1532.
The yield on UK 10-year gilts dipped to 4.81% at the London close, compared with 4.84% at the same time on Friday, signalling a degree of calm in bond markets.
Attention also remained fixed on the Middle East, where Iran and the US said their latest round of talks in Switzerland had made meaningful progress following a marathon negotiating session.
US President JD Vance declared that a “very good foundation” had been laid for negotiations towards a final deal, with mediators also claiming progress.
Deutsche Bank analyst Jim Reid said “the latest developments out of the Middle East have turned more constructive,” adding that a pickup in oil flows through the Strait of Hormuz was “helping to calm markets”.
Brent crude for August delivery fell to 77.38 dollars a barrel, down from 80.21 dollars on Friday, reflecting easing supply fears.
London-listed banks were among the session’s strongest performers, with NatWest (NWG) rising 4.0% and both Lloyds (LLOY) and Barclays (BARC) climbing 3.9% respectively.
Defence manufacturer Babcock International (BAB) dropped 5.9% after it failed to raise guidance alongside its full-year results, which were also weighed down by a previously announced £140 million charge related to the Type 31 frigate programme.
Russ Mould, investment director at AJ Bell, said: “Various governments have pledged to boost defence spending which has led certain investors to believe the earnings pipeline for defence contractors is vast, and there is now an element of disappointment.”
JPMorgan analyst David Perry flagged a possible near-term impact from the change in prime minister, saying “a change in PM could delay some contract awards,” though he believes this is only a matter of timing.
On the FTSE 250, easyJet (EZJ) rose 2.8% after the airline rejected three takeover proposals from Minneapolis-based asset manager Castlelake, the latest of which valued the Luton-based carrier at around £4.74 billion.
The airline branded Castlelake’s approach an “opportunistic attempt to acquire easyJet on the cheap,” having received bids of 560p, 600p, and finally 625p per share.
Ocado (OCDO) fell 5.9% following reports that the Hatfield-based grocer and warehouse technology firm is preparing to appoint a successor to chief executive Tim Steiner.
Gold climbed to 4,184.04 dollars an ounce on Monday, up from 4,152.32 dollars on Friday, as investors continued to seek safe-haven assets amid global uncertainty.