Pound under pressure as Starmer exit speculation rattles markets

The pound weakened on Monday as investors assessed mounting speculation that British Prime Minister Keir Starmer could soon set out a timetable for his departure, opening the door for Andy Burnham to emerge as the country’s next leader.

Sterling was down 0.2% at $1.321.

The currency has now lost around 3% since pressure on Starmer began to intensify in February.

The latest move in the pound came as political uncertainty in Britain added to existing concerns over the country’s public finances, weak growth, and elevated borrowing costs.

The political pressure on Starmer has risen sharply in recent days.

The pressure also intensified after Burnham, his Labour colleague and rival, returned to the UK parliament with a strong election victory.

If Starmer does step aside, it would mark a dramatic reversal in fortunes just two years after he led the Labour Party back to power with a landslide win after 14 years in opposition.

Burnham’s rise sharpens market focus on fiscal direction

The threat to Starmer’s leadership escalated on Friday when Burnham, the former Greater Manchester mayor, decisively won a parliamentary election to return to Westminster.

That result appears to have pushed markets to consider the possibility of a leadership change more seriously.

For investors, the central question is not only whether Burnham could replace Starmer, but what his economic policy would look like if he did.

Burnham is seen as more left-leaning than Starmer.

While he has said he would retain finance minister Rachel Reeves’ fiscal rules, investors are likely to seek clearer proof before adjusting their expectations.

That uncertainty has already started to show up in markets.

The options market indicates that traders are willing to pay more to hedge against volatility in the pound in the coming weeks than they were on Friday, suggesting investors expect further swings as the political picture develops.

The gilt market remains a key pressure point

The bigger concern for many investors remains the UK government bond market.

The gilt yields were around 4.85%, not far from their highest level since the 2008 financial crisis.

At those levels, Britain faces higher medium-term borrowing costs than any other developed nation.

Repeated political crises have also made investors wary of gilts.

Broader market backdrop adds to caution

The pressure on sterling also came against a broader backdrop of global market caution.

The US dollar held steady on Monday as investors continued to favour it amid geopolitical risks, higher Treasury yields, and fresh political uncertainty in Britain.

A fragile diplomatic track between the US and Iran helped reduce some immediate fears around Gulf shipping.

High-level talks in Switzerland reportedly produced a 60-day roadmap for a broader agreement, backed by mediators Qatar and Pakistan.

The plan includes further technical discussions and a mechanism aimed at protecting commercial shipping through the Strait of Hormuz.

Crude prices initially found support after Iran said it had closed the waterway, but prices later eased as both sides signalled progress.

Brent traded below $80 a barrel, suggesting energy traders had scaled back some of the immediate supply risk premium.

Currency investors, however, remained cautious.

Concerns over shipping flows through Hormuz, oil prices, and inflation risks kept demand for the dollar firm