The pound is being weighed down by political uncertainty as Sir Keir Starmer struggles to stabilise his leadership.
Michael Pfister, an analyst at Commerzbank, said it “remains questionable” whether Starmer will still be prime minister by the end of the year, adding that sterling is likely to remain under pressure until the situation is resolved.
A leading stockbroker also warned the pound could fall 3% to 5% if the Government shifted sharply left following any leadership challenge. Panmure Liberum said a left-leaning successor could trigger higher borrowing, weaker growth and rising inflation.
Starmer appeared to have survived the latest attempt to unseat him on Monday after a dramatic day that included calls for his resignation from Scottish Labour leader Anas Sarwar. However, Polymarket now puts the odds of him being ousted by June next year at 70% amid ongoing fallout from the Lord Mandelson scandal.
Simon French, chief UK economist at Panmure Liberum, warned that a leadership change involving figures such as Angela Rayner or Ed Miliband could push up government borrowing costs, with 10-year gilt yields rising by 40 to 60 basis points, potentially above 5%. The yield edged up one basis point on Monday to 4.52%.
