UK stock markets pushed higher as investors chose to focus on signs of resilient economic growth and renewed takeover activity rather than the escalating Labour Party leadership crisis engulfing Prime Minister Keir Starmer.

The FTSE 100 closed up 47.58 points, or 0.5%, at 10,372.93, while the mid-cap FTSE 250 gained 1.3% to finish at 22,828.07. The Cboe UK 100 index rose 0.7% to 1,030.68 and the Cboe UK 250 advanced 1.6% to 19,737.01, underscoring broad-based gains across blue-chip and domestically focused names. Only the small-cap segment lagged, with the Cboe Small Companies Index down 0.3% at 18,291.68.

Growth resilience steadies nerves

Better-than-expected UK growth figures helped steady market sentiment at a time when investors have been grappling with stubborn inflation, rising global bond yields and geopolitical shocks. Fresh data pointed to recovering business investment and industrial output falling by less than feared, indicating that higher borrowing costs have not yet choked off corporate spending or manufacturing activity to the degree some economists had warned.

The more constructive data backdrop arrives against the Bank of England’s latest guidance that interest rates, currently at 3.75%, are likely to remain restrictive for some time as policymakers battle inflation running at 3.3%, above the 2% target. While the Bank has warned that the war in the Middle East and related energy price pressures could push inflation higher again this year, equity investors appeared willing to look through those risks in favour of signs that the real economy is holding up.

Traders said the growth numbers were enough to offset jitters from a global bond sell-off that has driven up yields and refocused attention on the path of monetary policy in the US and Europe. US Treasury yields eased slightly after a recent spike, with the 10-year note yield slipping to 4.46% from 4.50% and the 30-year to 5.01% from 5.05%, providing an additional tailwind to risk assets.

Political turmoil in Westminster

The market’s calm reaction came despite deepening political uncertainty in Westminster. Health Secretary Wes Streeting resigned from the cabinet, a move widely seen as paving the way for a potential leadership challenge against Keir Starmer. The prime minister, whose Labour Party swept to power in 2024, is battling to retain control of his party after bruising local election results and mounting internal dissent.

Four junior ministers have already quit, and more than 80 Labour MPs have publicly urged Starmer to stand down. He has insisted he will remain in post and pressed ahead with his policy agenda, but investors are increasingly having to factor in the risk of a messy leadership contest that could delay legislation and cloud the fiscal outlook.

For now, however, markets appear to be treating the turmoil as political theatre rather than an immediate economic threat. Sterling trading was relatively subdued and gilts largely took their cue from global fixed-income moves, suggesting that investors do not yet see a material risk of a shift away from the broad macro framework that has guided policy since Labour entered office.

Deal frenzy lifts mid-caps

Mergers and acquisitions activity provided a powerful boost to London’s mid-cap index, underlining the continuing appeal of UK assets to overseas buyers and financial sponsors. Tate & Lyle surged 45% after the London-based food and beverage ingredient producer confirmed it had received a takeover approach from US peer Ingredion.

Ingredion later detailed a 595p per share, non-binding indicative all-cash proposal, valuing Tate & Lyle at £2.65 billion. Including the right for shareholders to receive a final dividend of up to 13p and an interim dividend of up to 7p, the approach implies a headline value of up to 615p per share, or roughly £2.74 billion. Tate & Lyle said it was evaluating the proposal, though there is no certainty a firm offer will be made.

Spire Healthcare also rocketed higher, jumping 49% after backing a takeover proposal from its second-largest shareholder, Toscafund Asset Management. The private healthcare group said Toscafund had tabled a 250p per share cash offer, valuing Spire at about £1.01 billion. The potential deal underscores continuing private equity and hedge fund interest in UK healthcare, which has seen steady demand and pricing power despite broader cost pressures.

Market participants said the twin approaches reinforced a narrative that UK-listed companies remain undervalued relative to international peers, leaving them vulnerable to opportunistic bids. A weaker valuation backdrop, coupled with the recent stabilisation in financing markets, has emboldened bidders to test boards and shareholders on price.

Blue-chip winners and losers

Within the FTSE 100, Legal & General was a standout gainer, climbing 6.2% after the Financial Times reported that potential suitors, including rival insurers and alternative asset managers, had been examining the business for a possible break-up or sale. Chief executive António Simões sought to play down speculation, insisting he was not considering a break-up and was “100% focused” on executing his strategy, adding that “there’s no discussions or anything else going on.”

Despite the denial, one current insider quoted by the FT said it nonetheless “feels like we’re being dressed up for a sale”, fuelling talk that activist or strategic pressure could build if the share price fails to reflect the group’s asset management and insurance franchises. The episode again highlighted how UK financial groups are being scrutinised by global capital at a time when London is striving to revive its appeal as a listings venue.

Information and analytics group Relx added 1.4% after a seminar focused on its Risk Business Services division, particularly its Fraud & Identity solutions, which account for about 16% of Risk and Business Analytics sales. JPMorgan analyst Daniel Kerven said management reiterated expectations for high single-digit underlying organic revenue growth for the division over at least the next decade, with revenue growth expected to outpace costs. The comments reassured investors that Relx can continue to deliver steady, compounding returns even as competition intensifies in data and risk analytics.

Private equity group 3i was the session’s most notable laggard, slumping 13% after revealing slowing sales growth at its key investment, Dutch discount retailer Action. At the end of week 19 to 10 May, Action’s year-to-date like-for-like sales growth slipped to 2.4%, down sharply from 6.8% a year earlier. The deceleration raised questions over the durability of the discount retail boom that has buoyed 3i’s valuation in recent years and prompted some investors to bank profits after a strong run in the stock.

Global backdrop: record Wall Street highs and bond angst

The positive tone in London came against a mixed international backdrop. On Wall Street, the S&P 500 closed near a record 7,400 and the Nasdaq surged past 26,000, extending a six-week winning streak powered by robust corporate earnings and fervent interest in artificial intelligence-linked stocks. Cisco leapt 15% after delivering better-than-expected quarterly earnings and raising guidance on AI-related sales, citing broad-based record demand for its networking technology.

Yet the equity euphoria has been tempered by rising concern over inflation and interest rates. A deepening global bond sell-off in recent sessions has pushed yields higher and rattled rate-sensitive sectors. Market commentators warned that if yields continue to climb, the valuation support underpinning equities could be tested, particularly in highly rated growth names and leveraged sectors.

For UK investors, the interplay between domestic resilience and global macro risks is becoming increasingly pivotal. Stronger UK data has helped cushion the impact of higher yields, but the Bank of England’s insistence that inflation may pick up again complicates hopes for imminent rate cuts. At the same time, persistent political uncertainty at home could reprice UK assets if it begins to influence fiscal policy or investor confidence more materially.

London’s uneasy equilibrium

The day’s trading underlined the uneasy equilibrium facing UK markets. On one side, a combination of resilient growth figures, an undervalued equity market and a steady drumbeat of takeover interest is supporting prices and luring capital back into British assets. On the other, elevated inflation, higher-for-longer interest rates and domestic political instability pose clear risks.

For now, investors appear willing to give the UK the benefit of the doubt, betting that economic momentum and global risk appetite will outweigh the noise from Westminster. Whether that calculation holds will depend on the Bank of England’s next moves, the trajectory of global bond yields and whether Labour’s internal crisis can be contained without spilling over into economic policy.

In the meantime, the renewed focus on corporate dealmaking and structural undervaluation is likely to keep UK boardrooms on alert — and foreign bidders circling — as global markets continue to test just how cheap British plc really is.