The pound rebounded on Monday morning after Prime Minister Sir Keir Starmer confirmed he will step down, erasing earlier losses. Sterling was up 0.05% at $1.324 in morning trading, having been around 0.3% lower shortly before the PM's speech. Against the euro, the pound rose 0.07% to 1.154.
Market reaction to Starmer's departure
The pound has already lost about 3% since February as Starmer's leadership came under increasing threat from Labour party challengers. The announcement of his plan to step down provided some relief to markets, with analysts attributing the swing to expectations of a smooth leadership transition.
Chris Beauchamp, chief market analyst at IG, said: "While the UK now has to wait to see who fancies their chances in the leadership election, the strong possibility that Burnham is the sole candidate has boosted sterling back above $1.32. In addition, Starmer's decision not to fight in any contest further reinforces the coronation narrative, as the party looks to unite behind a leader and get back to proving their worth to govern."
Andy Burnham returns to Westminster
Former Greater Manchester mayor Andy Burnham is due to return to Westminster on Monday after winning the Makerfield by-election last week, paving the way for him to mount a leadership bid. He is widely seen as the frontrunner to succeed Starmer.
Sir Keir laid out a potential timeframe for his departure, with nominations for a new leader set to open on July 9. He said he would ask Labour's ruling National Executive Committee (NEC) to set a timetable that would see a new leader in place by the time Parliament returns from its summer recess on September 1.
Broader market outlook
Financial markets were otherwise in wait-and-see mode. The FTSE 100 Index remained just over five points lower at 10,357.97. UK government bond yields were steady, with the 10-year yield flat at 4.845%, having been higher prior to the announcement. Gilt yields move counter to bond prices, meaning prices fall when yields rise.
Analysts noted that gilt yields, while recovered from levels seen during the worst of the Iran conflict, remain higher than international peers. Traders are preparing for further volatility as they await more details on Burnham's policy stance and whether he may face opposition in the leadership process.
Joe Nellis, economic adviser at MHA, said: "Investors are now focusing on what an Andy Burnham premiership will look like. The volatility in the market reflects that perhaps not even Mr Burnham knows what this looks like."
