Sterling sank on Tuesday as another damaging wave of ministerial resignations and political intrigue pushed the Labour government to the brink.
Over 100 Labour MPs have publicly called for Keir Starmer to go, but neither this nor the four cabinet ministers who resigned yesterday was enough to topple the prime minister. Starmer promised to get on with governing. Judging by the pound’s weakness and by more tremors in the bond market, investors seem to believe this story has further to run.
Since Monday evening, the pound has weakened by almost a cent against the euro and by almost two cents against the US dollar. Fears around what (or perhaps more accurately, who) comes next drove government borrowing costs to their highest level since 1998 yesterday.
For all this government’s frequent run-ins with the bond market, investors would still rather have a prime minister commitment to defined spending rules. Contrast that with most of the leadership contenders, who (fairly or unfairly) are viewed as more likely to raise taxes, boost spending or both. Angela Rayner, West Streeting and Greater Manchester mayor Andy Burnham are the bookies’ favourites to succeed Starmer, should he indeed be toppled.
Of course, all of this remains speculative. The truth is that nobody can say with certainty where the pound will move next. With uncertainty at extreme levels, the best recourse is to protect your budget with a forward contract. Call 020 8003 4915 and our team will be glad to discuss how we can help you navigate the current drama.
The prime minister will attempt to finally draw a line under this saga by meeting leadership hopeful Streeting today. Based on media reports, Starmer is banking on the bumper list of bills in the King’s Speech to inject some life into his ailing premiership.
Away from Britain, Donald Trump arrives in Beijing today for a summit with China’s Xi Jinping. The last meeting between the two last February ended with an exchange of tariffs, so financial markets will be watching closely for any tensions as the war in the Middle East continues to strain the global economy.
GBP: Not much to inspire confidence
Between the prospect of a protracted leadership battle, weaker growth projections and the likelihood that the next Labour leader unveils higher spending to placate the wing of the party, there isn’t much positive for the pound to cling onto at the moment. One prominent bank analyst predicted it might fall to levels last since following the mini-budget by the end of the year.GBP/USD: the past year
EUR: Consumers perk up
May’s German economic sentiment report from the Centre of Economic Research (ZEW) saw consumers perk up a tad from last month’s 12-month low. However, the -10.2 still score the score dip into negative territory for just the third time in almost two years, a sign of the strains on the eurozone’s largest economy.GBP/EUR: the past year
USD: Conflict comes home
The American economy (and the US dollar, for that matter) has ben largely shielded from the impact of the war in the Middle East until now. However, April’s inflation report recorded a larger increase in prices than expected, with a surge in energy costs led by high gasoline prices.USD/GBP: the past year
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