Sterling Weakens Amid Political and Economic Uncertainty in the UK

The British pound weakened for a second consecutive day due to weak labor market data and political unrest involving Prime Minister Keir Starmer. The decline is linked to the upcoming budget and bond performance. The Bank of England rates and inflation data are influencing currency and economic forecasts.

The British pound declined for the second consecutive day, following soft labor market figures and reports of political instability involving Prime Minister Keir Starmer. Numerous British media outlets reported on Wednesday that Starmer, aware of a possible plot to oust him, is prepared to confront any leadership challenges. Health Secretary Wes Streeting refuted speculation of his involvement in any plan to unseat the Prime Minister.

Chris Turner, head of research at ING, indicated that the pound's limp performance might be tied to the political unrest surrounding Starmer. With the upcoming budget in focus, the pound recently fell by 0.2% against the dollar to $1.3125 and slipped as much as 0.2% against the euro to 88.26 pence, approaching its lowest level in two-and-a-half years.

The public finances outlook has deteriorated due to previous plans to reduce welfare spending cuts and a potential downgrade in the productivity forecast. U.K. bonds also lagged behind those in Europe and the U.S., reflected by the 10-year gilt yield increasing by 3 basis points. Market expectations remain high for a potential rate cut by the Bank of England in December, even as unemployment ticks up and wage growth stabilizes.

(With inputs from agencies.)