The British pound has performed relatively well this year, gaining against several currencies, including a 1.6% increase against the euro and a 2.8% rise against the Swiss franc. However, the resignation of Prime Minister Keir Starmer and the appointment of Andy Burnham as his successor have raised concerns about the political stability and fiscal policies in the U.K.
Despite the pound's recent strength, analysts like Matthew Ryan from Ebury note that the currency's performance could be at risk due to rising U.K. borrowing costs and a global bond sell-off.
The Bank of England has maintained its key interest rate at 3.75%, contrasting with expectations of rate hikes from the European Central Bank and the Federal Reserve, which typically strengthen their respective currencies. The upcoming budget announcement on October 28 is expected to carry political risk, with potential tax changes and increased debt issuance to fund Burnham's spending plans.
Analysts warn that any measures perceived as detrimental to growth could further weaken the pound, especially in light of rising inflation pressures linked to higher oil and gas prices