Recalling 2022 and the three months after Boris Johnson resigned, GBP/EUR swung by 9%. Quite the ride for clients who were mid-transaction but not locked into a rate. It’s entirely possible that Sir Keir Starmer remains at Number 10, but what could happen if he departs?
It depends on how financial markets interpret fiscal discipline, business regulation and economic confidence in his likely challengers, all from his own left-of-centre Labour Party.
If Andy Burnham wins, as looks the most likely, markets will weigh his focus on regional investment and infrastructure growth against concerns over higher public borrowing.
Wes Streeting would be the centrist continuity candidate, close to Starmer and Rachel Reeve’s fiscal framework but strongly pro-EU. By contrast, a more left-wing leadership under Angela Rayner may raise questions in currency markets about taxation, borrowing and business regulation.
But the future for GBP doesn’t depend on left or right, but on trust. After all, Liz Truss crashed sterling with a right-wing agenda.
If Keir Starmer remains prime minister, sterling will continue to trade mainly on Bank of England policy, UK growth, inflation and global market sentiment, with continuity often seen positively by currency markets.