The first 72 hours of Andy Burnham’s premiership have set the tone: a decisive move away from centrist politics and towards a more interventionist, left-wing agenda focused on tackling the cost of living crisis. But after the removal of a Labour government barely two years old, what does this political reset mean for the pound? One thing is already clear: fiscal credibility, alongside Burnham’s performance during his first 100 days, will be central to GBP’s direction over the coming year.
Inflation, Gilts, and the Bank of England’s Next Move
Burnham also inherits a changing inflation picture. June CPI came in at 2.6%, below the 2.7% consensus and down from 2.8% (ONS, June 2026). Services inflation eased from 3.7% to 3.6%, while goods inflation fell from 2.0% to 1.7%. Sterling weakened following the release.
At face value, the equation is simple: lower inflation means less pressure on the Bank of England to raise rates, lower expected UK yields, and less support for the pound. Whether that calculation can survive the unpredictability of geopolitics and US foreign policy is another question.
Gilts provide an equally important gauge of confidence in Burnham’s arrival at Number 10. They sold off after he promised greater “flexibility” within the fiscal rules, immediately challenging his earlier suggestion that the framework would remain untouched.
John Healey’s Chancellorship: Stabiliser or Question Mark?
John Healey’s appointment as chancellor appeared to stabilise markets. He is viewed as a safer and more disciplined choice than Shabana Mahmood or the more spending-friendly Ed Miliband.
However, Healey’s support for increased defence spending, alongside the circumstances surrounding his earlier resignation, has raised concerns over how the government will fund its commitments. Reported cuts to bus-fare and energy-bill support have already prompted questions over where the fiscal gaps will be plugged. Starmer-aligned Labour figures have also challenged suggestions that the abandoned digital ID programme could provide funding, arguing that it was never fully funded in the first place.
The Bond Market Reaction
The initial bond-market reaction was meaningful. Ten-year gilt yields rose eight basis points to 5.04%, while 30-year yields climbed nine basis points to 5.75%, their highest level in two months (Financial Post). Equivalent German and US yields rose by only two and four basis points respectively.
Sterling weakened at the same time, suggesting investors viewed the rise in yields as compensation for additional fiscal risk rather than evidence of a stronger UK economy. The gilt market’s first judgment on Burnham was therefore cautious rather than catastrophic.
Healey’s appointment may have calmed fears of an overtly radical Treasury, but he has yet to establish himself as the fiscal anchor markets had hoped for. The Autumn Budget will determine whether he can contain Burnham’s spending ambitions — or whether investors will demand a permanently higher premium for holding UK assets.
Lessons from Starmer’s First 100 Days
There is an interesting comparison with Keir Starmer’s first 100 days. Between July and October 2024, GBP/USD rallied from around 1.26 to highs near 1.34 during the political honeymoon, before falling sharply as Autumn Budget concerns began to dominate.
Past performance is not a reliable indicator of future performance, but the parallel is worth noting: with a new Labour leader in place, businesses may wish to monitor developments ahead of the Autumn Budget, as volatility could increase..
What This Means for Payment Timing
For businesses managing multi-currency payments, whether similar market patterns emerge remains uncertain and will depend on economic and geopolitical developments. GBP/EUR remains above 1.17 and close to 18-month highs, leaving the pound well placed but increasingly exposed.
Geopolitical Risks to Watch
The complication, once again, is geopolitics. Domestic optimism may support sterling, but cable remains vulnerable to events beyond Britain’s control, including shifts in US foreign policy.
Burnham’s first days in office have already moved gilts and sterling, and the real test – Healey’s Autumn Budget – is still ahead. The pre-Budget period may echo 2024’s “Burnham Bounce,” but geopolitical risk and the unresolved question of how the government funds its commitments mean the pound’s path is anything but settled.
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