Pound Sterling Falters on Burnham Headlines

Above: File image of Andy Burnham. Copyright by World Economic Forum / Faruk Pinjo. Licensing and source.

Trader confirms news of an impending by-election hit the British pound.

Labour MP Andrew Gwynne is to step down from parliament, it has been announced.

The move will trigger a by-election in his Manchester seat, and it opens the door for Andy Burnham to stand for election and return to parliament.

Burnham, the current Mayor of Greater Manchester, stands a good chance of winning this historically safe Labour seat. If he wins he is widely expected to challenge the Prime Minister for his position.

Sam Coates, Deputy Political Editor at Sky News, says he was messaged by one of his sources on a trading floor who linked the news to a sudden selloff in the pound.

📍The trader said:

"The Burnham angle to the Gwynne story was very interesting for markets as we saw a sudden sell-off in GBP and gilts. Nothing huge in real terms but it certainly confirmed how the market would react to Burnham potentially having a pathway into Parliament and then putting in a leadership challenge.

"The underlying political risk view for markets is that as bad as Starmer and Reeves may be, there's potentially something worse waiting in the wings, of which Burnham is but one."

The pound to euro exchange rate dropped from the cusp of 1.15 to 1.1450, overturning a daily advance to go into the red.

The pound to dollar exchange rate is now nursing is also in the red at 1.3417.

Burnham caused waves last September when he indicated he was willing to challenge Keir Starmer for leadership of the party, which, if successful, would mean he would become Prime Minister.

Markets reacted negatively to associated headlines that showed Burnham wanted to borrow billions of pounds to invest in social housing. He also said the government should not be 'in hoc' to the bond markets.

That line alone indicates a clear ignorance of how the markets work and how precarious the UK's finances are.

Traders see Burnham and other Labour alternatives to Starmer as being more left-wing and fiscally loose.

Global bond markets are already nervous about the sheer avalanche of debt that the world's major economies are about to issue.

⬇️ This week's selloff in Japanese debt shows Japan is a particular concern: markets are concerned that the new prime minister of what is the world's most indebted country will lower taxes and boost government spending.

Barclays meanwhile forecasts a €100BN increase in gross debt sales by EU countries this year.

Germany is a key driver here: the "scarcity of Bunds is definitely over" said Tammo Diemer, an executive board member at Germany's finance agency. Germany will issue more debt after removing its constitutional borrowing limit to allow for a huge increase in infrastructure and defence spending.

Amidst this tetchy global backdrop, the UK can ill afford a spendthrift replacement to Keir Starmer and Rachel Reeves.