Seven Prime Ministers in a Decade

5 min read

On 20 July Andy Burnham became Prime Minister. He is Britain's seventh in a decade. Governments, chancellors and fiscal rules have come and gone at a pace few would have thought possible ten years ago. Through all of it one thing has moved in a steady direction: the price of gold in pounds.

A new government in a hurry

Burnham was the only candidate when Labour leadership nominations closed. He was confirmed as leader on 17 July. Three days later he was in Downing Street. He appointed John Healey as Chancellor in place of Rachel Reeves, a choice markets had not expected. On 31 July Healey set the date for his first Budget: Wednesday 28 October.

The bond market gave its view on day one. Burnham said he would look for flexibility within the fiscal rules. On 20 July the 10-year gilt yield rose to 5.04%, the highest in the G7. The 30-year yield climbed to 5.75%. In June we described how the gilt market sent Britain a warning. The warning has not gone away.

A gilt yield is simply the interest rate the government pays to borrow. When it rises, every new pound of borrowing costs more. It also feeds through to mortgage rates and annuity rates, which is why a nervous bond market is felt in ordinary households long before it reaches the headlines.

Seven leaders, one direction

In the summer of 2016 David Cameron left Downing Street. Six prime ministers have followed him, along with several chancellors and more than one rewrite of the fiscal rules. Theresa May, Boris Johnson, Liz Truss, Rishi Sunak, Keir Starmer and now Andy Burnham each arrived promising to put the public finances on a firmer footing. Over the same decade the price of gold in pounds has roughly tripled, even after this year's fall from its January record.

That rise is not a story about gold becoming more valuable. It is a story about the pound buying less. Each government has borrowed more than it planned. Thresholds have been frozen and inflation has quietly done the rest. In June 2024 we wrote that gold outlasts every government. Two prime ministers later, that line reads less like an opinion and more like a record of events.

Two days that show the pattern

The decade began with a jolt. On 24 June 2016, the morning after the referendum, gold rose 4.5 percent in dollars. In pounds it rose 13.6 percent, to £958.68 an ounce, having briefly topped £1,000 for the first time in more than three years. Nothing had happened to the metal. The pound had fallen sharply. For a British saver, gold did exactly what it is meant to do: it held its value when the currency did not.

Six years later came a second lesson. In September 2022 the government of Liz Truss announced £45 billion of unfunded tax cuts. Gilt prices fell so fast that pension funds that had borrowed against their gilts faced calls for cash and were forced to sell. On 28 September the Bank of England stepped in, offering to buy up to £65 billion of long dated gilts over 13 days. Its deputy governor, Sir Jon Cunliffe, later warned that without action there would have been "severe disruption of core funding markets and consequent widespread financial instability". It was the first time the Bank had bought gilts for financial stability reasons.

Truss's time in office was brief. Within weeks Rishi Sunak had taken her place. The episode is now a byword for what happens when a government loses the confidence of its lenders. It is also the reason markets reacted so quickly to Burnham's talk of flexibility in July.

Central banks lean towards higher rates

July also brought a notable shift at both major central banks. On 29 July the Federal Reserve held its rate at 3.5% to 3.75%. Three of its members voted to raise it. The Bank of England held Bank Rate at 3.75% at the end of the month. Three members of its committee, Megan Greene, Catherine Mann and Huw Pill, voted for a rise to 4%. UK inflation stood at 2.6%, with the Bank expecting it to rise later this year as energy costs feed through.

For savers, higher rates sound like good news. But a rate rise only helps if it outpaces inflation after tax. From April 2027 the tax on savings interest is due to rise by two percentage points. Cash still has to run hard just to stand still.

Higher rates also cut both ways. They raise the cost of every mortgage renewal and every pound the government borrows, which is why policymakers rarely keep them high for long when debts are this large.

Gold holds its ground

After four months of falls, gold steadied in July. It held its ground throughout the month and closed with a small gain of around 0.4%, its first monthly rise since February. The forces that weighed on it in the spring, a firm dollar and talk of higher rates, have not disappeared. But the selling pressure eased as markets weighed softer US inflation data for June. For buyers, a calmer month after a sharp fall is often when questions turn from price to purpose.

As we explained in Meeting the Warsh Fed, a high-rate world is hard to sustain when governments owe so much. Every rise in rates adds to interest bills that are already above £100 billion a year in Britain.

Ahead of the Budget

Every new Chancellor looks for money. Taxes on savings, property and other assets have all risen in recent Budgets. We covered the last two in After the Budget and The Freeze That Keeps on Taking. Capital Gains Tax rates on most assets now stand at 18% and 24%, with an annual exemption of just £3,000.

A new Chancellor also inherits the choices of the old one. Healey takes over a fiscal plan that already relies on frozen thresholds and higher taxes on savings income. He has less than three months to set out his own. Whatever he decides, the pattern of the last decade suggests that savers will be asked to carry part of the cost, which is why so many are thinking now about where their money sits.

UK legal tender gold coins such as the Britannia and the Sovereign stand apart. Because they are legal tender, gains on them are exempt from Capital Gains Tax for UK residents. Gold's place outside the politics of the moment is the reason so many British savers hold it through every change of government.

What a decade teaches

Seven prime ministers have brought seven sets of promises. Some were kept and many were not. The one constant has been that each government has needed to borrow more. The pound has bought a little less at the end of each term than at the start. Gold has no manifesto and needs no majority. It simply reflects what has happened to the money around it. For a saver thinking in decades rather than election cycles, that steadiness is the point. Governments will keep changing. The need to protect what you have built will not.

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Sources

This article is for information only. The value of gold can go down as well as up.

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Gold Insights are independent articles, researched and written by our own team at Gold Tier Advisory.