British Pound: Political uncertainty pressures Sterling and gilts – MUFG

MUFG’s Lee Hardman expects the British Pound (GBP) to stay on a softer footing as UK political uncertainty rises. He links intensified selling in gilts and the Pound to Andy Burnham’s move to enter Parliament and potentially challenge Prime Minister Keir Starmer, alongside concerns over a leftward policy shift, higher borrowing plans, and inflation risks from the energy price shock.

UK politics seen as headwind for Pound

"In contrast to the US dollar, the pound is expected to remain on a softer footing in the week ahead reflecting heightened political uncertainty in the UK, and fears that the Labour party will shift to the left under new leadership."

"It has been reported that he has called for GBP40 billion of additional government borrowing to fund long-term capital spending."

"The unfavourable domestic political developments come at a challenging time for the gilt market which is also facing the risk of much higher inflation from the energy price shock."

"We continue to hold a short GBP/CHF trade idea in the near-term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)