Picture by Simon Dawson / No 10 Downing Street
Labour MPs are said to be plotting the Prime Minister’s removal.
Rumours swirled overnight of moves within the Labour Party to remove Prime Minister Keir Starmer, which will keep the pound on the back foot.
Pound sterling is highly sensitive to political uncertainty and will not take kindly to any attempt to replace Starmer and Chancellor Rachel Reeves with a more left-aligned combination.
Bloomberg reports that allies of Starmer sought to ward off a feared leadership challenge from Health Secretary Wes Streeting.
A spokesperson for Streeting described the claims as “categorically untrue”.
In September, fears of a challenge to Starmer’s leadership arose on reports Manchester Mayor Andy Burnham fancied himself for the job.
There’s clearly discontent in a party that is now regularly polling sub-20% nationally, and the significant tax increases set to be announced will unlikely improve Labour’s position.
Above: Politico’s Poll of Polls.
There are two immediate issues for the British pound:
1) It intensely dislikes political uncertainty, as exemplified by pound sterling’s weakness and sensitivities during the Brexit negotiation years.
2) Any replacement of Starmer or Reeves would likely come from the party’s populist left and would opt to spend and borrow more to try and steady Labour’s poll standings. For exmple, Burnham advocates for borrowing billions to build social housing.
This outcome poses a significant risk for the UK’s debt trajectory; the pound is already highly sensitive to developments on this front.
The pound is already under pressure on concerns Chancellor Rachel Reeves needs to find up to £30BN in savings and extra taxes to plug a black hole that has arisen in the country’s finances over the past year:
“Political risks, chiefly, take the form of a post-Budget personnel change, whereby the fiscal package is received so terribly, and the political fallout proves so brutal, that Chancellor Reeves does not survive in post – probably as, naively, PM Starmer attempts to save his own job,” says Michael Brown, Senior Research Strategist at Pepperstone.
The pound to euro exchange rate treads water near two-year lows at 1.1344 and looks ripe to break to plumb new depths in the coming days.
The pound to dollar exchange rate is consolidating at 1.3170, putting it just above recent multi-week lows at 1.3020.
