Emergency Podcast: Why Britain's Political Turmoil Will End In Crisis

Summary

Merryn Talks Money – Emergency Podcast: Why Britain's Political Turmoil Will End In Crisis

Host: Merryn Somerset Webb (Editor-at-Large, Bloomberg)
Guest: John Stepek (Senior Reporter, Bloomberg UK, author of “Money Distilled” newsletter)
Date: May 13, 2026

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Overview

This episode, recorded amid ongoing political upheaval in the UK, features Merryn Somerset Webb and John Stepek discussing why the current turmoil—marked by potential Labour leadership challenges and dire public finances—could be heading toward a full-blown crisis. The conversation takes a candid, sometimes darkly comic tone as they unpack the risks for markets and for Britain’s economic trajectory.

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Key Discussion Points & Insights

1. Stark Political Uncertainty and Labour Party Infighting

• The episode opens with live speculation over Labour leader Keir Starmer possibly resigning—or not—underscoring deep instability at the top of UK politics.
  • Quote: “We were waiting for a resignation from Keir Starmer... at the moment we are hearing that possibly he might announce a possible resignation tomorrow or something like that, or maybe next week, or maybe in a month, or maybe in two months.” (Merryn, 02:36)
• Potential successors discussed:
  • Wes Streeting (positioned as more market-friendly and centrist)
  • Andy Burnham (not currently an MP, but attempts are being made to let him stand)
  • Angela Rayner (appears to be backing Burnham)
• John notes changing leaders mid-parliament isn't inherently problematic if the public is unhappy:
  • Quote: “I don't really have a big issue with parties changing leaders in the middle of the game. If it is clear that the population is not happy with the way things are going, I think that's kind of clear.” (John, 04:10)
• Memorable Moment: The running joke about this being an “emergency podcast” versus just a “quicker than usual” episode, highlighting the frenetic mood.

2. Potential Market and Bond Market Reactions

• Both hosts repeatedly stress: Leadership change alone may not alleviate market concerns; the worry is deeper fiscal and institutional instability.
  • If Labour shifts further left, bond markets are likely to respond badly.
  • The bond (gilt) market is already pricing in UK risk more severely than other G7 peers: “UK debt is priced at a much higher level or higher yield than other debt inside the G7, 60 plus basis points above everybody else.” (Merryn, 06:46)
  • “We have horrible debt levels and absolutely no expectation in the minds of most people that anything is going to change.” (Merryn, 06:49)

3. Chronic Fiscal Weakness & Inflation Dilemmas

• UK’s net public debt is nearly 100% of GDP.
• Government spending has soared (including the tax take) but crucially, debt interest is now taking up a vast and growing share of the budget:
  • “At the beginning of the pandemic, we were spending well under 5% of government spending was on debt interest. And last year it was 8%. And now it's going to be significantly higher...suddenly spending 10% of government spending is on interest payments alone.” (Merryn, 10:16-10:38)
  • “It's not sustainable.” (John, 10:38)
• Inflation remains stubbornly high, partly because, as John quotes Simon French: “We basically ration every part of the economy that we need to grow without inflation.” (John, 10:01)

4. The Need for (and Risks of) a Crisis to Bring Real Change

• Both hosts suggest only a true crisis will force the UK system to confront these realities—a bond market revolt, currency shock, or similar.
  • Quote: “There are ways that this does echo the Jim Callahan labour government of the 1970s… with that it was the IMF that created the external shock… perhaps we need something similar, some kind of bond market… or an fx. I don’t like using the word crisis, but the pound falling a lot to make people wake up.” (John, 11:47)
  • Merryn summarises the feeling sweeping the City: “You hear this more and more, John. People saying, well, the UK needs an existential crisis to help it pull itself together. It’s not going to just happen. Something horrible has to happen before this ridiculous squabbling stops and things change.” (Merryn, 12:51)
  • John: “Crises create the opportunity to change things and I guess they always do. It’s very rarely see proper change happen in the absence of a crisis.” (John, 13:03)
• The pair joke (darkly): “Wait for the crisis. The crisis will be the catalyst.” (Merryn & John, 13:30–13:33)

5. Outlook: No Easy Heroes, No Obvious “Good” Candidates

• Both guests agree that no leadership candidate currently inspires much hope for a capable, pro-growth, market-reassuring direction.
  • “Right now, the next few weeks, we don't see any particularly good outcomes and nor do we see any particularly good candidates.” (Merryn, 14:50)

6. Long-term UK Potential Still There—If Unlocked

• Despite pessimism, Merryn closes on a (qualified) optimistic note listing the UK’s latent advantages—innovative technology, strong education, high savings—if only better policies were enacted.
  • “The UK has... a great base... if only we could have a politician who could put in place the policies to allow the UK to succeed.” (Merryn, 14:02)

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Notable Quotes & Memorable Moments

• John on Wes Streeting: “He still believes in a decent sized state, but he's not going to sit there and go, yeah, the bond market. Yeah, whatever that can go away. You know, he's somebody who actually understands roughly how things work.” (John, 05:34)
• Bond market realities: “You can't get away from the fact that net public debt to GDP is pushing 100% in the UK.” (Merryn, 06:12)
• On crisis as a catalyst: “The crisis will be the catalyst. Yeah, okay. And it's not that far away, one would guess at this rate.” (Merryn, 13:33)
• On public debt: “At the beginning of the pandemic, we were spending well under 5% of government spending was on debt interest. And last year it was 8%. And now it's going to be significantly higher…. 10% of government spending is on interest payments alone. You know you're in trouble.” (Merryn, 10:16–10:38)
• Merryn’s final summary: “Right now, the best we can hope for is the kind of crisis that lets us restart everything.” (Merryn, 14:49)
• John, dryly: “Control, alt, delete.” (John, 14:50)

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Important Timestamps

• 02:07–03:45: Political uncertainty, speculation about Starmer’s resignation and Labour Party leadership alternatives.
• 05:07–06:46: Discussion on potential successors’ market views; bond market nerves.
• 06:12–07:06: UK’s fiscal position and gilt market unease.
• 10:01–10:38: Government debt interest costs and why current trends are unsustainable.
• 11:47–13:33: Why only a crisis might force needed reforms; historical parallels.
• 14:02–14:49: The UK’s underlying economic strengths and potential—if change comes.

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Tone and Takeaways

• The episode balances gallows humor (about waiting for a crisis as the only solution) with serious, data-driven analysis.
• Both hosts are skeptical of optimistic endings without “something horrible” (a market crisis or currency shock) jolting the system into action.
• There is a clear warning: Continued policy drift and leadership uncertainty will eventually force the UK to confront hard fiscal limitations, whether leaders want to or not.

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Summary for First-Time Listeners:
If you haven’t tuned in, this episode gives a brisk, insight-packed rundown on why Britain’s current political infighting and unsustainable finances may well be setting the stage for a bond market or currency crisis—and why, paradoxically, many in finance now see such a shock as the best hope for a reset. Both knowledgeable and darkly witty, this is an essential listen for anyone keen to understand the state of UK markets and politics in mid-2026.

Transcript

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Bloomberg Audio Studios Podcasts Radio News.

[Marian Sumset Webb]

Welcome to the Marion Talks Money Market Wrap where we talk about the biggest moves in markets this week and what is driving them. I'm Marian Sumset Webb, Editor at Large

[John Steppe]

for Bloomberg uk We and I'm John Steppe, senior reporter at Bloomberg and author of the Mayan still newsletter. I was just carried away because this is an emergency podcast.

[Marian Sumset Webb]

This is not an emergency podcast. This is a regular podcast just done slightly more quickly than usual. That's it.

[John Steppe]

Oh stop spoiling my face.

[Marian Sumset Webb]

All right now come on John. There's a lot going on and we are speaking on 13th May mid afternoon and normally I don't bother telling people exactly when we're speaking, but I'm telling them today because there is a lot going on. We're just sitting here. We were waiting for a resignation from Keir Starmer or a mention of a resignation or a possibility of resignation. And at the moment we are hearing that possibly he might announce a possible resignation tomorrow or something like that, or maybe next week, or maybe in a month, or maybe in two months.

[John Steppe]

What I've heard is that Wes Stretton is considering resigning tomorrow and then launching a leadership battle. Just to be very clear, I may be completely wrong here, I'm not a political expert, but I don't think Keir Starmer's ever going to resign as involuntarily go.

[Marian Sumset Webb]

I think bring, as I read somewhere this morning, he's given giving all the kids a great lessons in resilience and script and we're finally finding out what he's good at.

[John Steppe]

Yeah, I know, it's funny, hanging on

[Marian Sumset Webb]

in the face of adversity. Ghost Stor.

[John Steppe]

They also try to make this sort of like big thing of him being ruthless and then they're surprised when he is actually literally ruthless in terms of protecting his own position. But yes, anyway, listen, so he's not

[Marian Sumset Webb]

going to go by himself? Probably not.

[John Steppe]

They need to push him.

[Marian Sumset Webb]

And even if he did, political uncertainty isn't going anywhere because who knows who comes next? And if it ends up with the party being shoved further left, even further left, then the bond market isn't going to like that either. So it's hard to see how his resignation, or his forced resignation anyway, would improve matters.

[John Steppe]

I mean, not from the bond market's point of view. It depends on. I mean, I think that people object to this because they think, oh, gosh, it's more infighting. But at the end of the day, the country has actually given its verdict quite strongly in the local election. And if I'm honest, I don't really have a big issue with parties changing leaders in the middle of the game. If it is clear that the population is not happy with the way things are going, I think that's kind of clear. Yeah. And I don't think we need to necessarily can have a general election to give them a mandate. But yes, we've got Streeting. The candidates so far that we're aware of are straighting, possibly Angela Rayner, although she seems to be falling in behind Andy Burnham. So basically, that is it. You get Andy Barnum, who isn't an mp, but they're all trying to find some convoluted way to let him stand. And streeting and streeting is regarded as being on the right of the Labor Party to most listeners who might have a more kind of neutral political perspective. That doesn't mean he's right wing. It Just means that he's less addicted to spending than the people.

[Marian Sumset Webb]

He's definitely a little bit more pro market.

[John Steppe]

He's.

[Marian Sumset Webb]

Yeah, you know, he's been more pro market on public services. You know, he's been talking about using the private sector in the nhs. He's a little bit less pro relentless expansion of welfare than some other people. A little bit more hardline on crime. Maybe he's kind of bleeding tiny bit more pro business. You know, you could call him slightly right of the rest of the Labour Party.

[John Steppe]

Yeah, he still believes in a decent sized state, but he's not going to sit there and go, yeah, the bond market. Yeah, whatever that can go away. You know, he's somebody who actually understands roughly how things work. Andy Burnham clearly keeps sort of trying to allude to a way to get around the bond market. He's clearly aware that it matters, but it's not clear, I would say, from what he says or from what his supporters say particularly, that they really get what it's for or, you know, why it's there or why it's a constraint. And I think that's something that can make the, obviously will make the gilts market kind of, you know, worry.

[Bloomberg Daybreak Hosts (Nathan Hager and Karen Moscow)]

Yeah.

[Marian Sumset Webb]

And we have to be very clear on what's going on here already and that the UK guilt market is, you know, there's lots will talk about, oh, maybe our debt to GDP ratios aren't on that bad relative to other people's and, you know, maybe there's stability ahead, et cetera, et cetera. But you can't get away from the fact that net public debt to gdp is pushing 100% in the UK. You can't get away from the fact that Rachel Reeves has pushed up spending massively since you get in both on current spending and what we might call, or not call investment spending.

[John Steppe]

Yeah. There is the tax take that's also shot up, that is keeping that in check. It's not because they've been careful or anything like that.

[Marian Sumset Webb]

And so, you know, there is, there is a reason why UK debt is priced at a much higher level or higher yield than other debt inside the G7, 60 plus basis points above everybody else. And the reason for that is that we have horrible debt levels and absolutely no expectation in the minds of most people that anything is going to change.

[John Steppe]

Yeah.

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[John Steppe]

And also we've consistently too high inflation. Which is basically because as Simon French At Pam, New Libra keeps pointing out we basically ration every part of the economy that we need to grow without inflation.

[Marian Sumset Webb]

And this debt level is hideous for public spending. So at the beginning of the pandemic, we were spending well under 5% of government spending was on debt interest. And last year it was 8%. And now it's going to be significantly higher. Yeah, it's getting 10% keeps going up and up and up and you're suddenly spending. 10% of government spending is on interest payments alone. You know you're in trouble.

[John Steppe]

Yeah, it's not sustainable. And so, yeah, you can see why. I think the main reason the gilt market is a bit more worried about the politics than it may have been is because of this idea that they may throw what little fiscal caution they've got to the winds. And as far as I can see, the other problem is that whether or not we don't know that anyone's going to stand and challenge Starmer, but if streathing does it, there's already talk from the left of the party that, well, if he gets into power, one of them said we'll kick him out faster than they get rid of Liz Truss. And you're like, okay, so it's not even as if the next leader is necessarily the final leader for this particular parliament. I get why gilt markets are at the moment unsettled rather than panicking and we don't. I think it's really important to emphasize that this is not like 2022 in the Liz Truss situation because that was a very different set circumstances and you don't have the same level instability and leverage that creates a kind of doom loop. But in some ways that's worse because actually what we're getting now is just a repricing that says, well, okay, well, Britain is really kind of unreliable. We're a bit worried about. It's not so much even. It's not its capacity to reprice this, it's the desire. There are ways, and I'm certainly not the first person to say this, but there are ways that this does echo the Jim Callahan labor government of the 1970s, which is a group of people refusing to confront reality with that. It was the IMF that created the external shock that gave Jim Callaghan the permission to stand up in front of his party and say, look, need to get a grip. We can't spend money the way we've been spending it and obviously still get kicked out of the next election. And perhaps we need something similar, some kind of bond market I guess gilt market strike or an fx. I don't like using the word crisis, but the pound falling a lot to make people wake up and realize, actually no, we need a change of direction and that's regardless of who they put in at the top.

[Marian Sumset Webb]

It is. You hear this more and more, John. People saying, well, the UK needs an existential crisis to help it pull itself together. It's not going to just happen. Something horrible has to happen before this ridiculous squabbling stops and things change.

[John Steppe]

Which is unfortunate, but yeah, I mean, I mean that's it. Crises create the opportunity to change things and I guess they always do. It's very rarely see proper change happen in the absence of a crisis. Certainly in our history and also the history of Europe more widely. Maybe that's the buy signal whenever everything goes horribly pear shaped. I don't know.

[Marian Sumset Webb]

Wait for the crisis.

[John Steppe]

Wait for the crisis.

[Marian Sumset Webb]

The crisis will be the catalyst. Yeah, okay. And it's not that far away, one would guess at this rate.

[John Steppe]

Well, you gotta hope so. It would be nice to get it over and done maybe before we have yet another party in power.

[Marian Sumset Webb]

An entire podcast based on the idea that the best possible outcome is a full crisis.

[John Steppe]

Yes, I suppose so. It's hard to really, I'd say think an alternative outcome. The alternative outcome is just kind of lumbering along the way that we've been going.

[Marian Sumset Webb]

That can't go on and definitely you can't go on with this, you know, anti growth stuff. And definitely at some point something has to change and at some point the UK has to be let loose to grow again. And all the wonderful things that we often talk about about the uk, you know, this great base that we have, our amazing technology sector, astonishing ability to innovate, our great education sector. The fact, as we've talked about a couple of times, the very high levels of savings that the UK population has, et cetera, we are ready to go. If only we could have a politician who could put in place the policies to allow the UK to succeed. Let's not talk ourselves around in circles and get upset. We're just going to have to leave it there before we upset ourselves. Right now the best we can hope for is the kind of crisis that lets us restart everything.

[John Steppe]

Yeah. Control, alt, delete.

[Marian Sumset Webb]

Yeah. And right now, the next few weeks, we don't see any particularly good outcomes and nor do we see any particularly good candidates.

[John Steppe]

No.

[Marian Sumset Webb]

But we have all learnt about how amazingly resilient Keir Starmer is and that's something. That is something. Thanks for listening to this week's marantalks Money Debrief. If you like our show Rape Review and subscribe wherever you listen to podcasts. Also be sure to follow me and John on X or Twitter erinsw on JohnStepek. This episode was produced by Samosadi. Production support and sound design by Moses andam. Questions and comments on this show and all our shows are always welcome. Our show email is meranmoneyloomberg.

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This is Saigon, the story of my family and of the country that shaped us.

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From iheart Podcasts. Saigon.

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You don't think I'm serious about a

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There's a fire coming to this country

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and it's going to burn out everything.

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Listen to Saigon on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.