The last thing that the UK and the Pound need is an extended and uncertain leadership contest

The last thing that the UK and the Pound need is an extended and uncertain leadership contest, an outcome that the Prime Minister seems to have made a guarantee by clinging onto the top job.

Although the first major hurdle to removing the PM is the need for any challenger to have the formal support of 80 MP’s, just for them, not a general support for a new leader. This seems to be a large part of the reason the former Health Minister Wes Streeting conducted a slow-motion resignation by having aides announce his intention on Wednesday only to actually resign a day later.

Streeting knew he did not have the support of 80 MP’s but had essentially made it politically impossible to not resign come Wednesday evening.

Of all the frontrunners, Streeting seems the most likely to continue the “don’t rock the boat” fiscal attitude of the present leadership team, but it is the chance of a deeper left leaning fiscally expansive new leader that is spooking Gilt markets. Whilst the 30yr at its highest yield since 1997 makes the more eye-catching headline, the much more common 10yr Gilt at a 2008 high, 60bps higher YTD.

The only silver lining for Gilt markets at the moment may be that Mayor of Greater Manchester, Andy Burnham, from the left of the party, has chosen to run in the Makerfield by-election to win his seat in the Commons. Makerfield, where the Labour party only won against Reform by 13% in the 2024 GE, saw every Council seat it contested in the broader area lost to other parties. 

Burnham runs one of the most indebted councils in the country with Manchester, with debt rising £289 million just in 2025, for an overall of £1.6 billion being owed. So Gilt traders' fear of more deficit spending should Burnham succeed is reasonable. Still however, Makerfield could prove a difficult nut to crack for the party and the man seeking to prove they can take the fight to Reform.

The Pound’s recent dire performance has not reflected this chance that the PM’s current challengers have very significant hurdles to success. Moreover, Burnham may be running as a left-wing candidate but intending to govern as a fiscal centrist as the reality of the UK debt situation is made clear.

The Pound would perform better if Starmer was clear of the coup, but that will likely only end when the count from Makerfield is in, which will take at least a month, suggesting that this current Pound slide may become an extended slump before long.