Sterling is under pressure as UK political uncertainty becomes a bigger concern for currency investors.
Speculation over Keir Starmer’s leadership and the possibility of Andy Burnham emerging as a future Labour leader has unsettled markets. The concern is that a change in leadership could bring a more interventionist approach to government policy, raising questions over fiscal discipline and future direction.
That risk is already showing in the currency market. GBP/USD fell by nearly 1.8% last Friday, while GBP/EUR dropped by almost 1%. The move shows that investors are quick to price in political risk when confidence in UK policy direction weakens.
The wider political backdrop is also becoming more difficult to read. In Makerfield, Reform UK is polling strongly ahead of the by-election, while Rupert Lowe’s Restore Britain movement is adding further pressure to the established parties. The market reaction has drawn comparisons with the 2022 mini-budget period, when concerns over unfunded spending and fiscal credibility hit sterling sharply.
Andy Burnham’s record in Greater Manchester gives the situation some balance. The region has delivered average annual growth of 3.1% since 2015, which may support the view that his leadership would not necessarily be negative for business or markets.
The Makerfield by-election is therefore important for sterling. Polling firms put Reform UK at 45.3% of the vote, and a strong result could increase pressure on Labour. That would keep political risk in focus and may add further pressure to the pound.
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