Another one bites the dust
Yesterday, UK Prime Minister Sir Keir Starmer announced his resignation outside the door of 10 Downing Street. This is a sight that has become all too common in UK politics. Starmer will remain as a caretaker Prime Minister until his successor is chosen by the party. This resignation did not come as a shock for several reasons. His tenure in office has been brought into question on several occasions during his term. As scrutiny over his ability to lead the country intensified in recent weeks, so too did the expectation for him to step down. In addition, clearly too excited for the main event, President Donald Trump announced Starmer’s resignation for him on truth social on Sunday.
In an ultimately unsurprising move, the pound rallied following the PM’s resignation yesterday. So, why did the pound manage to find support on the back of what could be perceived as increasing political uncertainty? The answer is relatively simple: the resignation marks the maturity of an inevitable event paving the way to greater political certainty in the future. That political certainly almost certainly takes the shape of Mayor of Manchester-turned-Makerfield MP, Andy Burnham.
Now, you may ask, wasn’t the prospect of a Burnham government enough to tank the pound last month? And, yes, would be the answer. Today’s market is reacting differently for one key reason: last month no one knew what a Burnham Labour government looked like. They feared the uncertainty that it could exhibit the currency-damaging fiscal profligacy that can be associated with a Labour government. However, that risk now appears to have largely subsided thanks to early clues about what his government may look like. What added to Sterling’s fortunes yesterday was the declared support for Burnham by former health secretary Wes Streeting. Wes had been a hopeful for the top-job following his early resignation from Starmer’s ailing government. His endorsement of another candidate raises hope for a smooth transition of power thereby limiting the expected fiscal risk premium following the summer recess.
Discussion and Analysis by Charles Porter
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