Sterling Firms as Markets Eye Burnham’s First Moves

The British pound fell to around $1.342 on Monday as investors assessed the appointment of Andy Burnham as the UK's new prime minister and continued to monitor the outlook for monetary policy. Burnham, who succeeded Keir Starmer unopposed, becomes the country's seventh prime minister in the past decade and the second since Labour returned to power in 2024. He reaffirmed his commitment to existing fiscal rules while signalling he is considering raising the income tax personal allowance, which has remained frozen in recent years. Attention has now shifted to his choice of chancellor, with reports that Shabana Mahmood is the leading candidate. Meanwhile, elevated oil prices continued to fuel inflation concerns, reinforcing expectations that the Bank of England will keep interest rates higher for longer.

Sterling climbed as high as $1.348 before surrendering its gains to trade little changed near $1.344 after Andy Burnham officially became the UK's Prime Minister on Monday. Burnham, who stood unopposed in the Labour leadership contest following Keir Starmer's resignation, becomes the UK's seventh prime minister in the past decade and the second since Labour returned to power in 2024. Markets are now focused on Burnham's choice of Chancellor. Reports that Shabana Mahmood is the leading candidate have reassured investors, easing concerns that the new government could adopt a more expansionary fiscal stance. Meanwhile, escalating tensions in the Middle East have pushed oil prices to their highest level in over a month, adding to inflationary pressures and reinforcing expectations that the Bank of England will keep interest rates higher for longer.

Sterling edged above $1.345 as Andy Burnham prepares to take office as Prime Minister today. Investor attention is now firmly on Burnham’s choice of Chancellor. Reports last week suggesting that Shabana Mahmood is the leading candidate have helped reassure markets, easing concerns that the new government could pursue a more expansionary fiscal agenda. Meanwhile, escalating tensions in the Middle East have pushed oil prices above $90 a barrel, adding to inflationary risks and reinforcing expectations that the Bank of England will keep policy tighter for longer. The US and Iran have exchanged an escalating series of retaliatory attacks, with US forces launching multiple strikes on Iran following the deaths of American service personnel. The longer the conflict persists, the greater the risk that elevated crude prices become entrenched.