By Reuters

(Reuters) - UK shares were set to snap ​a two-day winning streak on Friday as investors weighed a possible leadership challenge ‌to Prime Minister Keir Starmer from Greater Manchester Mayor Andy Burnham, while also worrying about inflation risks.

Burnham said on Thursday he would seek to contest a parliamentary seat becoming vacant after ​a colleague's decision to stand down, potentially paving the way to challenge ​Starmer.

Investors worry that Burnham's "business friendly socialism" could lead to more spending ⁠and borrowing by the government, straining Britain's finances at a time when it ​is already under pressure.

"A process involving Burnham promises to be more protracted and 'noisy', thereby ​prolonging and exacerbating the uncertainty about the political situation in the UK," said AJ Bell investment director Russ Mould.

The blue-chip FTSE 100 index (.FTSE) fell 1.20% as of 10:58 am GMT, while the ​midcap FTSE 250 (.FTMC) dropped 1.22%.

Starmer has been struggling to hold on to power after ​the Labour Party's poor performance in the local elections last week. Wes Streeting, who quit as ‌health ⁠minister on Thursday, is also expected to run against Starmer if a formal contest begins.

Separately, investors were spooked by the prospect of escalation in the Middle East conflict after U.S. President Donald Trump said his patience with Iran was running out.

Oil prices ​rose, with Brent crude ​futures rising 2.61% ⁠to $108.49 a barrel. As an oil importer, the UK faces the risk of higher inflation if disruption in the Strait ​of Hormuz persists and oil prices stay elevated.

The highly anticipated ​meeting between ⁠Trump and China's President Xi Jinping also produced no major breakthroughs on resolving the war.

"Markets didn't hear enough from Beijing to turn more optimistic on the Gulf," said Francesco ⁠Pesole, ​FX strategist at ING.

Shares of metal miners (.FTNMX551030) fell 5.00%, ​while utilities (.FTUB6510) dropped 4.88%.

3i Group (III.L) was the biggest gainer on the FTSE 100, rebounding 5.40% after a ​12.76% drop a day earlier.

Reporting by Niket Nishant in Bengaluru; Editing by Tasim Zahid

Reuters report

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