LONDON, UK – JULY 9: British Prime Minister Sir Keir Starmer will host the first roundtable of UK regional mayors with Andy Burnham (R), Mayor of Greater Manchester, at Downing Street, London, UK on 9 July 2024. Sir Keir Starmer hosted the first roundtable with metro mayors from 11 regions across England. (Photo by Ian Vogler – WPA Pool/Getty Images)
WPA Pool | Getty Images News | Getty Images
LONDON — Britain’s gold and pound are under increasing pressure amid concerns that a new left-leaning prime minister will challenge the country’s fiscal discipline and take a confrontational stance on bond markets.
Selling pressure intensified on Friday as investors reacted to the removal of a hurdle to Labor rival Andy Burnham’s challenge to Keir Starmer’s chancellorship.
It came as US President Donald Trump told reporters it would be “tough” for Starmer to survive politically without addressing key issues such as immigration and energy policy.
Mr Burnham, who is currently the mayor of Greater Manchester, is not a sitting member of the UK parliament, but on Friday he was offered a new path to the House of Commons, potentially accelerating his path to No. 10 Downing Street.
Burnham is set to stand in the upcoming by-election in Makerfield, north-west England, after his party’s Josh Symonds resigned and agreed to allow Labour’s “King in the North” to run.
Mr Burnham attempted to contest a by-election in January but was thwarted by Starmer supporters in an attempt to block the challenge.
There is currently intense pressure on Mr Starmer to resign following Labor’s disastrous performance in last week’s local council elections, and if Mr Burnham wins against the dominant right-wing Reform Party in future polls, he could gain momentum to become prime minister.
left shift
The imminent prospect of a Burnham-led UK is currently spooking investors.
Last year, the mayor of Manchester accused the UK government of “hamstringing the bond market”.
Traders are also concerned about a more left-wing policy program that would break with the current government’s commitment to fiscal restraint, including an additional £40bn of borrowing for housing and infrastructure spending and tax increases on luxury homes in London and the south-east of England.
GBP/USD.
british lb The currency fell to a one-month low against the dollar on Friday, continuing its continued slide last week as talk of a challenge to Mr Starmer gained momentum. The pound fell 0.3% against the dollar in morning trading, trading at $1.3363.
On the other hand, the yield is 10 years gilts The UK government debt benchmark, the Treasury, remains well above 5%, rising more than 1 basis point to 5.137% on Friday.
Elias Haddad, global head of foreign exchange market strategy at BBH, said a Burnham-led Labor government would likely lead to increased spending and borrowing.
“Political uncertainty will continue to dominate the price movement of the pound and government bonds, with the bias to the downside given the deterioration in UK fiscal confidence,” Haddad said in a note on Friday. “The UK’s nominal GDP growth rate is below the 10-year bond yield, making it very difficult to stop debt growth.”
Mr Haddad pointed to recent polling suggesting 61% of Labor members back Burnham, compared to 28% who support Starmer.
Predictive betting market Polymarket also says Burnham is by far the most likely to become the next British Prime Minister, at 42%. Meanwhile, there is only a 27% chance that Mr Starmer will remain in office, and a 12% chance that former deputy prime minister Angela Lyner will become prime minister.
political “psychodrama”
Analysts at Deutsche Bank noted that Mr. Burnham had partially retracted some of his comments from last year about the bond market, emphasizing his comments in February that they should not be ignored.
But Neil Mehta, macro portfolio manager at RBC BlueBay, believes the Labor government is making a decisive shift to the left, which will have an impact on markets and assets.
UK 10 Year Gilt.
Mehta said: “The next Labor leader will be from the left of the party, and given the uncertainty, UK financial assets and the pound are likely to be exposed to a political risk premium for an extended period of time.”
Meanwhile, Peter Ricketts, a member of the House of Lords and a former diplomat, suggested that new developments in what he called the “Westminster psychodrama” would damage Britain’s reputation and international influence.
“Keir Starmer will be less effective as a European leader in dealing with the Ukraine and Iran crises if he is fighting for jobs at home,” Ricketts said. “The EU will have little interest in negotiating closer ties with the UK unless it knows who will be prime minister in a few months.”
