CNBC's UK Exchange newsletter: Starmer’s EU push faces a harsh political reality

Next month will mark a decade since Britain voted to leave the European Union but, as last week's local elections demonstrate, the vote continues to cast a long shadow.

The results highlighted the extent to which the governing Labour Party's support has fractured along lines echoing the referendum.

Labour's younger voters, chiefly in London and university cities, defected in many cases to the pro-EU Green Party.

But even larger numbers of socially conservative white working-class voters in Wales, Scotland and northern England — the traditional bedrock of Labour's support — switched to Reform, the insurgent party founded by Nigel Farage, the renowned Brexit campaigner.

Prime Minister Keir Starmer, as he battles to save his premiership, is promising to set a "new direction for Britain" at his summit with the EU in July.

"The last government was defined by breaking our relationship with Europe," he said. "This Labour government will be defined by rebuilding our relationship with Europe by putting Britain at the heart of Europe so that we are stronger on the economy, stronger on trade, stronger on defense."

That doesn't sound like the kind of pitch to entice a former Labour voter in Sunderland, St Helens or Barnsley — all former Labour-run councils that fell to Reform — back.

The bigger question, for businesses and investors, is what Starmer meant by rebuilding the relationship.

In his speech, he cited rejoining Erasmus, the EU program funding international placements in education and training, picturing "an ambitious youth experience scheme to be at the heart of our new arrangement with the EU … so that our young people can work and study and live in Europe".

Notably, though, Starmer did nothing to suggest he will drop manifesto commitments ruling out freedom of movement between Britain and the EU or rejoining either the EU's single market or customs union.

That is more cautious than many in his party would like. Sadiq Khan, mayor of London, wants to rejoin the EU. So does Andy Burnham, mayor of Greater Manchester, who is seen as a leading contender to succeed Starmer despite not currently being an MP.

Instead, the government appears to support what, in Whitehall jargon, is called "dynamic alignment."

For example, at the July summit, Starmer wants to conclude deals that would eventually remove some border checks for plant and animal products after agreeing to align with EU rules on food standards.

There are also hopes of reviving talks to exempt British businesses from paying the EU's new Carbon Border Adjustment Mechanism (CBAM), which has not proved possible to date.

In addition, the government has agreed to negotiate British participation in the EU's electricity market.

The King's Speech today is widely expected to include some legislation resetting the relationship with the EU.

But a reset will be hard, as has been shown by the on-off negotiations for Britain to join the EU's 140 billion euro ($164 billion) Security Action for Europe (SAFE) fund.

It is also risky. Brexit-supporting newspapers and politicians are alert to any attempts to draw Britain back into the orbit of Brussels, as they see it, while a piecemeal approach will not satisfy younger voters who will accept nothing less than rejoining.

Yet this cautious, softly-softly approach has been the hallmark of Starmer's premiership.

It is hard to see him changing that, even as his position in 10 Downing Street hangs in the balance.

— Ian King

UK MPs are turning on PM Starmer — Now analysts say he's unlikely to last the year. Analysts have slashed the odds of Starmer facing a leadership challenge by September.

UK government borrowing costs surge to highest since 2008 as PM Starmer pressured to quit. The yield on the benchmark 10-year gilt jumped 10 basis points on Tuesday to trade at around 5.103%.

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