Starmer exit risk jumps 8pp in 7 days; UK gilts & FTSE haven't repriced political tail

This is ANGLE C: a sustained shift in crowd probability over 7 days is a leading indicator. The Starmer-exit probability has risen 7.1pp in a single week—a 538% relative move—suggesting either a genuine political event (backbench revolt, major scandal) or crowd fear of one. Yet UK equity indices and sterling have barely budged: FTSE 100 is flat YTD, GBP/USD is stable at 1.27, and UK bank valuations (HSBA, BARC, LLY.L) remain at 2024 consensus multiples. This is a classic mispricing: the crowd is pricing a tail event that equity markets have not yet discounted. If the crowd's probability shift holds—or if the underlying catalyst (leadership crisis) materializes—UK financial equities will face a sharp repricing downward due to (1) sterling weakness reducing overseas earnings, (2) gilt volatility raising funding costs, and (3) domestic demand collapse from political uncertainty. Conversely, if the spike is pure noise, the unwind will be equally sharp. Either way, the lag between prediction-market repricing and equity repricing is the trade.

The strongest case against this trade is that Starmer's Labour government has a 172-seat majority (as of Jan 2025) and faces no imminent election until 2029; the probability jump may be pure noise or a result of thin Polymarket liquidity ($78.8k is modest) rather than genuine political risk. The vulnerable assumption is that Polymarket's crowd is more informed than UK political betting markets or Westminster insiders—it may not be. A single credible poll showing Labour's lead widening, or a statement from Starmer reaffirming his commitment, would collapse the probability back to <3% within hours, and shorts would face a sharp unwind. The data point that would flip this view immediately: any major UK media outlet (FT, BBC, Telegraph) reporting credible backbench dissent or a health concern around Starmer.

In June 2016, Polymarket and betting markets priced Brexit at 20-25% the night before the referendum; UK equities and sterling were priced for Remain. Within 48 hours of the result, GBP fell 10%, FTSE 100 fell 3.5%, and financials fell 8-12%. The equity lag was 12-24 hours. In September 2024, Trump-win probability on Polymarket jumped from 35% to 55% over 3 weeks; US small caps and tech-short positions remained underhedged until the final week, when they repriced sharply. The lag was 2-3 weeks. In this case, a 7pp move in 7 days is fast; the equity lag could be days to weeks.