Sterling has come under pressure following the recent UK local elections, with markets reacting to political uncertainty within the Labour Party, according to ING’s Chris Turner [1]. Although Labour's losses in the elections were not as severe as anticipated, they have nonetheless fueled speculation about a potential leadership contest and a possible shift towards more left-leaning government policies [1].
A key development highlighted is the potential re-entry of Manchester Mayor Andy Burnham into parliament, which could be triggered by either his resignation as mayor or a sitting Labour MP stepping down to facilitate his return. Markets are expected to respond to any such news, reflecting the heightened sensitivity to political changes within the Labour Party [1].
Attention is now focused on an upcoming policy speech by Prime Minister Keir Starmer, in which he is expected to address Labour's declining popularity and outline his strategy for the next general election. A significant point of market interest is whether Starmer will signal a move towards closer ties with Europe, such as rejoining the customs union or even the single market, which remains a contentious issue [1].
ING anticipates that it will be challenging for Starmer to appease his critics, and expects the EUR/GBP currency pair to revisit its overnight high at 0.8675 as uncertainty persists [1].
CONCLUSION
Political uncertainty within the Labour Party following the UK local elections is weighing on Sterling, with markets closely monitoring potential leadership changes and policy shifts. ING expects continued volatility in EUR/GBP, particularly as investors await further clarity from Prime Minister Starmer’s policy speech.