Pound heads for worst week in 18 months as Burnham lines up Labour bid

"The pound was heading for its worst week in 18 months on Friday as City traders anticipated that the UK prime minister, Keir Starmer, could face a challenge from the Manchester mayor, Andy Burnham, later this year. After days of uncertainty over Starmer's future, sterling dropped by almost three cents, or 2%, during the week to $1.336 on Friday, a five-week low. That would be the largest weekly drop against the US dollar since Donald Trump's election win in early November 2024."

"The pound fell against the dollar every day this week as leadership tensions gripped Westminster, culminating in the prospect of Burnham challenging Starmer for the role of PM after the Greater Manchester mayor announced he would run for parliament in the north-west constituency of Makerfield. The pound is weakening this morning after a sharp drop on Thursday, when Andy Burnham threw his hat into the ring, said Kathleen Brooks, the research director at XTB. This is a sign that Burnham is the least market-friendly of all the candidates, as Wes Streeting's resignation did not have the same negative effect, Brooks added."

"UK government borrowing costs jumped, amid a wider sell-off of sovereign debt. The yields on US and German government debt also rose though the UK rose by more as a rise in the oil price fuelled inflation worries. The yield, or interest rate, on UK 10-year bonds jumped to almost 5.17%, their highest level since 2008 and above the 18-year high set on Tuesday when pressure was mounting on Starmer after last week's local elections. Thirty-year bond yields also rose sharply, hitting 5.84%, above the 28-year high reached earlier this week."

"The sell-off in UK bonds reflected concerns in the City that a Burnham premiership might loosen the UK's fiscal rules and increase borrowing to fund higher spending. Investors remember that in January, Burnham said the UK was in hock to the bond markets and trapped in a low-growth do"

Sterling headed for its worst week in 18 months as traders anticipated a possible challenge to UK prime minister Keir Starmer from Manchester mayor Andy Burnham. The pound dropped nearly 3 cents, or 2%, to $1.336 on Friday, reaching a five-week low and falling against the dollar every day during the week. UK government borrowing costs rose amid a broader sell-off of sovereign debt, with UK 10-year bond yields climbing to almost 5.17%, the highest since 2008. Thirty-year yields also rose to 5.84%. The bond sell-off reflected concerns that a Burnham premiership could loosen fiscal rules and increase borrowing to fund higher spending, with oil prices adding inflation worries.

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