Starmer Exit Rattles Pound
Pound Falls to Multi-Year Lows Amid Starmer Departure Speculation and Market Volatility
Anonymous
Key Points
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Sterling hit an early intraday low near US$1.3181 and was approaching the 2026 trough at US$1.3159 set in March; a break below that March level would take the pound to its weakest level since November.
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Reporting says Starmer was expected to “concede power in a statement as soon as Monday,” but people familiar with the matter cautioned it was “not certain”; the same account said he spent the last three days weighing whether to continue fighting Greater Manchester Mayor Andy Burnham’s push to depose him.
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On monetary policy, the Bank of England left rates unchanged at 3.75% and revised down its peak inflation forecast for Q4 2026 to 3.25% from 3.6%.
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The gilt-market stress is tied to Britain’s structurally high funding costs: coverage said the UK already has the highest borrowing costs in the Group of Seven “due to its high debt and interest payments,” “years of anaemic economic growth,” difficulty cutting spending, and the need to invest in areas like defence; it also noted gilt yields around 4.85% are near the highest since the 2008 financial crisis.
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Options positioning is skewed further toward downside risk: one-week risk reversals were reported to trade near the most bearish levels for sterling in about a month, with options traders already positioned for further pound weakness.
The British pound fell to an intraday low of $1.3181 on Monday as investors priced in growing chances that Prime Minister Keir Starmer would announce his departure. Yahoo Finance reported that Starmer was expected to "concede power in a statement as soon as Monday," though people familiar with the matter cautioned it was "not certain."
The move brought sterling close to its 2026 trough of $1.3159, set in March. A break below that level would push the pound to its weakest point since November. Options traders were already positioned for more losses, with one-week risk reversals near their most bearish levels in about a month, according to Yahoo Finance.
Starmer Spent Weekend Weighing Whether to Fight On
Starmer spent three days over the weekend deciding whether to keep fighting Greater Manchester Mayor Andy Burnham's push to remove him, Yahoo Finance reported. Business Secretary Peter Kyle told broadcasters the PM was "thinking through the political realities." Senior cabinet members, including Foreign Secretary Yvette Cooper, reportedly advised Starmer that agreeing to a departure timetable had become necessary.
Burnham won the Makerfield by-election on June 19 with 55% of the vote, returning him to Parliament. He described the result as Labour's "final chance to change." His path back to Westminster was cleared after MP Josh Simons vacated the seat. Analysts widely view Burnham as the frontrunner to succeed Starmer.
Markets Zero In on Burnham's Fiscal Plans
The biggest question for investors is what a Burnham government would do with the UK's fiscal rules — the limits Britain sets on its own borrowing. George Buckley, an economist at Nomura, said "the most important question relates to Mr. Burnham's approach to fiscal policy... and whether he will stick to the fiscal rules," according to The Australian.
Markets are also watching who Burnham might pick as chancellor. Burnham has reportedly signaled he could keep Chancellor Rachel Reeves and her tight spending limits. But investors remain skeptical. If he appoints a more left-leaning chancellor, borrowing costs could rise further on an already strained public balance sheet.
UK Gilt Yields Near Highest Since the 2008 Crisis
Britain's gilt market — where the government borrows money by selling bonds — is under strain. The 10-year gilt yield hit 4.85%, near its highest level since the 2008 financial crisis. The 30-year yield reached 5.54%. Higher yields mean the UK must pay more to borrow, squeezing public finances further.
Yahoo Finance reported that the UK already has the highest borrowing costs in the Group of Seven nations. That is due to its high debt and interest payments, years of weak economic growth, and difficulty cutting spending. The country also needs to invest more in areas like defence. All of this leaves little room for a new leader to spend freely.
Bank of England Holds Rates as Politics Overshadow Policy
The Bank of England voted 7–2 to hold interest rates at 3.75% last Thursday. It also trimmed its forecast for peak inflation, cutting its Q4 2026 estimate to 3.25% from 3.6%. Under normal conditions, a lower inflation forecast would be good news for borrowers and the economy.
But political developments have dominated currency sentiment this week, pushing the Bank of England's decision to the sidelines. The Bank remains in a "meeting-by-meeting" stance. Analysts say political instability could force it to keep rates higher for longer in order to support sterling and keep investors from pulling money out of UK assets.
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