By George Glover

Prime Minister Keir Starmer is fighting for his political future, and the market thinks it's only a matter of time before the U.K. leader departs.

Members of Starmer's own Labour Party called for him to resign last week, after the latest batch of Jeffrey Epstein files revealed the close relationship his pick for ambassador to the U.S. had with the convicted sex offender.

Starmer said he wouldn't quit -- but this feels like a matter of when, not if. Bettors think there's a 67% chance he is out by the end of the year, according to the online prediction market Polymarket.

(Polymarket has a data partnership with Dow Jones, the publisher of Barron's.)

Potential future flashpoints include a special election in Greater Manchester on Feb. 26 and local elections in May. Starmer is likely to face further calls to stand down if his party loses those votes.

The big question for investors is what all this uncertainty will mean for the U.K. bond market. So far, the answer has been not much: Yields on 10-year government bonds, or gilts, have dropped 14 basis points over the past year, to 4.40% as of Monday. Yields fall when bond prices rise.

The bond market has dictated U.K. fiscal policy in recent years, which is why yields have held steady despite heightened uncertainty.

Governments have been wary of soaring gilt yields after they brought down Prime Minister Liz Truss in October 2022. Starmer is seen as fiscally conservative relative to the rest of his party, but any successor would find it hard to spend more.

"Even in a situation where we were to see a candidate from the left replace Starmer, it remains to be seen what space they would have to abandon his fiscal consolidation plan," Morningstar economist Grant Slade tells Barron's.

"There's going to be some natural bond vigilantism that would offset the ability of a left-wing candidate to raise spending without tax increases to fund that," he adds.

Cooling inflation and further interest-rate cuts by the Bank of England ought to bring 10-year yields down to 4.0% by the end of 2026, Goldman Sachs economist George Cole wrote in a research note on Friday. That suggests if Starmer's resignation did cause gilt prices to drop, savvy investors would do well to buy the dip.

The British pound has also weathered the political uncertainty well. It's risen 3.6% against the U.S. dollar over the past three months -- although some of that move is down to the so-called Sell America trade, which has weighed on the greenback.

It's a similar story for stocks. London's flagship FTSE 100 hit a record high on Thursday, shrugging off Starmer's most challenging week of his premiership since he was elected in July 2024.

Unlike the technology-heavy S&P 500, the FTSE is concentrated around energy majors such as Shell and manufacturers such as Unilever. Those sectors have benefited at the start of 2026 amid worries about the rise of artificial intelligence, with investors opting to dump tech and pivot to companies that make goods.

"Over the past few years, U.K. markets have barely budged on most issues that have arisen," says Morningstar equity strategist Michael Field. "Equity markets are touching all-time highs, so clearly politics isn't a huge concern right now."

Investors looking to add to their portfolios would do well to consider gilts and U.K. stocks. Starmer may be doomed, but British assets aren't.

Write to George Glover at george.glover@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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February 16, 2026 11:24 ET (16:24 GMT)

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