Picture by Lauren Hurley / No 10 Downing Street
Higher oil prices help the British pound steady, but sellers are ready to act on any misstep in Burnham's conference speech.
Pound sterling stabilised on Monday as higher oil prices drove UK gilt yields higher and attracted some international demand for yield-seeking investors.
Gains are nevertheless shallow and risks lean to the downside into today's early afternoon speech by Prime Minister Andy Burnham to the Labour Party conference, where he will lay out plans that will cost billions of pounds to fund.
It is reported Burnham is to set out plans to tackle rising youth unemployment and reform the social care system. Measures to limit the impact on households from rising oil and gas prices are also expected.
The challenges require significant amounts of new funds that must be found from a combination of cuts made elsewhere, higher taxes and additional borrowing.
Borrowing will inevitably have to rise given the Labour Party won't cut existing social spending - Keir Starmer tried this in 2025 and was ultimately ejected - and the tax rate is at a post-war high.
"With Andy Burnham nobly talking about his desire to launch a new social care service and welfare reform bill that is proving particularly difficult to win over Labour backbenchers, that desire for fiscal discipline could be left wanting unless growth prospects suddenly change," says Richard Carter, Head of Fixed Interest Research at Quilter Cheviot.
The additional borrowing requirement comes at a difficult time for the Prime Minister: the UK must issue more debt just as the cost of government borrowing across the world surges as governments elsewhere struggle to rein in spending, with the Middle East crisis only exacerbating the situation.
It is reported that Burnham will also promise "a raft of policies and commitments" in his speech, including on energy, water and housing.
Anchoring the rise in UK bond yields, and keeping the market on an even keel ahead of the event, is the messaging from government sources that "tough" decisions must be made, potentially regarding the ending of the pensions triple lock that ensures pensions rise generously each year. The state pension is the most costly element of the UK's welfare bill.
"The pound is hovering around two-month lows as the Prime Minister prepares to take to the stage, as investors assess the fragile nature of the UK economy," says Susanah Streeter, analyst at Wealth Club. "Markets remain jittery as fears over fuel supplies threaten to reignite inflationary pressures, with Brent Crude back above $106 a barrel."
Daniella Arcadipane, Senior Currency Specialist at Indigo
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Talk to a specialistToday's Risk for the Pound Lies in Credibility of Spending Plans
For the British pound, the risk is that Burnham doesn't detail how his plans will be paid for.
If markets sense that he has no grip on the future direction of debt issuance, yields can rise further into unsustainable territory and the pound could fall.
Typically rising gilt yields support sterling exchange rates, but it's at time of heightened concern that they part direction: yields rise and the pound falls. We saw it during the Truss mini-budget crisis and again when Keir Starmer's government failed to cut welfare spending in 2025.
"Markets are crying out for fiscal responsibility from the UK, particularly given its exposure to inflation linked shocks, but we await if it is something that can still be delivered by this new government," says Carter.
Above: GBP/EUR rose on Monday due to rising oil prices and after the EUR was hit by a bearish speech from ECB President Lagarde.
What We Think Will Happen
Pound Sterling Live's view is that Burnham is acutely aware of the power of the bond market and he won't deliver enough substance today to trigger any unruly price action.
He will set out long-term plans that will form the bedrock of his manifesto for an early election to be called in 2027.
Chancellor John Healey will, on October 28, issue a budget that offers no meaningful giveaways, given the tightness of debt markets, but will offer up some gimmicky headline grabbers.
That will be enough to keep Labour's polling advantage intact and pave the way for an election in the spring.
For the pound, there will be some relief following the passing of the event and it can reconnect with higher UK bond yields and a Bank of England interest rate policy dynamics.
Challenges then reemerge in the winter as surging fuel and energy bill costs raise the cost of living and act as a fiscal brake on economic growth.
A slowing economy will pose a headwind to the pound in the next year.
Daniella Arcadipane, Senior Currency Specialist at Indigo
Moving a life-changing sum abroad? You won’t be doing it alone.
One specialist explains every step in plain English and stays with it until the money lands. FCA authorised, FRN 594433.
Talk to a specialist
