London stocks had dipped into the red by midday on Monday as investors weighed the latest political developments in the UK against a surge in Japan's Nikkei, after prime minister Takaichi secured a landslide victory in Sunday's general election.
The FTSE 100 was down 0.1% at 10,358.13.
Stocks had opened higher following strong gains in Asia, where the Nikkei jumped nearly 4% after Prime Minister Takaichi's Liberal Democratic party secured a two-thirds supermajority in the elections.
But the top-flight index had nudged into negative territory by midday, while UK government borrowing costs edged up and the pound fell against the US dollar after Prime Minister Keir Starmer's director of communications, Tim Allan resigned, a day after his chief of staff Morgan McSweeney.
The resignations came as the PM continued to suffer the fallout from his appointment of Peter Mandelson as ambassador to the US. McSweeney said on Sunday that he took "full responsibility" for advising the PM to appoint Mandelson, who is now facing a police investigation over his links to convicted sex offender Jeffrey Epstein.
Neil Wilson, UK investor strategist at Saxo Markets, said: "Far from drawing a line under things, this seems to have sparked renewed calls for Starmer to do the same. Gilts were steady enough Monday morning but if the bond vigilantes were to sniff the likelihood of a leadership change I'd expect gilts to sell off with sterling also hit as a proxy for investor sentiment towards UK political uncertainty and instability."
In equity markets, precious metals miner Fresnillo and gold miners Endeavour and Hochschild all shone as gold and silver prices rose.
Susannah Streeter, chief investment strategist at Wealth Club, said: "Gold has risen back above $5,000 as safe haven demand continues and investors take the opportunity to buy in as the dollar weakens again. The precious metal continues to be sought after by central banks, like the People's Bank of China which increased its purchases yet again in January."
Plus500 surged after saying its FY 2026 performance was set to be ahead of market expectations following a better-than-expected performance in 2025, as it announced "significant" shareholder returns.
Ocado was little changed following a report over the weekend that it's planning to cut up to 1,000 jobs, or 5% of its global headcount, as part of a renewed cost-cutting drive after a bruising year for its automated warehouse business. According to The Times, talks are still in their early stages and a final decision has yet to be made.
On the downside, NatWest slumped after saying it was buying UK wealth manager Evelyn Partners from funds advised by Permira and Warburg Pincus for £2.7bn and launching a new £750m share buyback. The bank said the deal would increase fee income by 20% pre-revenue synergies. Evelyn Partners has £69bn of assets under management.
Lloyds was also sharply lower.
Greggs was under the cosh after broker Jefferies downgraded the shares to 'hold' from 'buy' and slashed the price target to 1,610p from 2,500p, saying that weight-loss jabs could dent demand for the bakery chain's products.
"While investor concerns have typically focused on pricing and cannibalisation, we are increasingly of the view that the rapid uptake of GLP‑1 weight‑loss drugs is impacting Greggs," it said.