The British pound, or sterling, stabilised at approximately $1.36, staying beneath the four-year peak of $1.387 as increasing political uncertainty and changing expectations regarding monetary policy weighed on the currency.
Sterling initially extended its post-Bank of England (BOE) losses to about $1.3510 weekend before it recovered to around $1.3625. GBP traded in a range of about $1.3585-$1.3640 on Monday.
Turmoil intensified after Prime Minister Keir Starmer’s chief of staff, Morgan McSweeney, resigned over the weekend, fueling speculation about Starmer’s leadership.
The Prime Minister is facing renewed calls to step down from within a restless Labour Party following controversy surrounding his appointment of Peter Mandelson as UK ambassador to the US, a decision that has drawn scrutiny over Mandelson’s past links to Jeffrey Epstein.
At the same time, growing expectations of additional Bank of England rate cuts have added to downward pressure on sterling.
Although policymakers held interest rates at 3.75% in a split vote, they adopted a more dovish tone than anticipated, signaling that CPI inflation is likely to return to the 2% target from April.
Analysts said a key question to start the week is whether the resignation of the chief of staff to the prime minister is sufficient to relieve Starmer of the pressure he has come under, or whether it will lead to relieving Starmer of his job.
There is talk that other cabinet ministers may threaten to resign. And then there is the special election later this month and the local elections in the Spring amidst UK economic drag.
Bank of England policymaker Catherine Mann said Brexit “continues to be a drag on the UK economy,” and warned that “continuing sluggishness in consumer spending, in business investment, in productivity growth” are holding back Britain by limiting how fast the economy can grow before triggering inflation.
Last week, Mann voted to hold interest rates in the UK at 3.75% and signalled she is increasingly worried about weakening economic activity and could support a rate cut shortly. Last week’s decision was a close call, with 5-4 in favor of a hold. Wema Bank Hits N1trn as Investors Bet on Earnings Growth
