Pound under pressure as UK leadership change clouds market outlook

The British pound was on track for its worst monthly performance against the dollar since July 2025 on Thursday, as fading interest rate support and renewed political uncertainty weighed on sterling.

The decline comes in a week that marked the 10th anniversary of the Brexit vote and followed the resignation of Labour Prime Minister Keir Starmer, adding a fresh layer of uncertainty for investors already reassessing the outlook for UK monetary policy.

Sterling has fallen 2.2% in June so far, marking its steepest monthly drop since July 2025, when it declined 3.8%.

On Thursday, the currency was trading at $1.3161, down 0.1% on the day and close to its weakest level since November.

Oil price drop eases inflation concerns

Part of the pressure on the pound has come from changing expectations around UK interest rates.

The suspension of hostilities between the United States and Iran has allowed energy products to move once again through the Strait of Hormuz, which has driven a sharp fall in crude oil prices.

The drop in oil prices has eased concerns over a fresh inflation spike in Britain.

In turn, that has reduced pressure on the Bank of England to raise interest rates aggressively to contain price growth.

For sterling, that shift matters.

Higher interest rates can support a currency by increasing the return on assets denominated in that currency.

But with energy prices falling and inflation fears softening, markets have dialled back expectations for further tightening from the Bank of England.

Market pricing now suggests traders expect one rate rise this year.

The reduced prospect of higher borrowing costs has removed a potential source of support for the pound at a time when political developments are also clouding the outlook.

Starmer’s resignation adds to market uncertainty

The political backdrop has become another point of concern for investors.

Starmer resigned on Monday after a sharp decline in his popularity.

His departure means Britain is set to have its seventh prime minister in the decade since the country voted to leave the European Union.

The anniversary of the Brexit referendum fell on June 23.

The prospect of another leadership change has shifted investor attention to who will take over and, crucially, who will run the Treasury.

Former Greater Manchester mayor Andy Burnham, who took up a seat in parliament this week after winning a local election, is seen as the frontrunner to replace Starmer.

Investors are now focused on whether he would keep Finance Minister Rachel Reeves in place.

For now, sterling remains under pressure from both sides.

The prospect of fewer Bank of England rate increases has weakened one pillar of support for the currency, while political change has raised fresh questions over fiscal leadership and investor confidence in the UK policy outlook.