The British Pound declined for a second consecutive day on Wednesday, following weaker labour market data released earlier in the week and media reports suggesting that Prime Minister Keir Starmer was bracing for a possible attempt to remove him from office.
According to several British news outlets, Starmer’s allies said he would resist any move against his leadership. Meanwhile, Health Secretary Wes Streeting dismissed claims that he was involved in a plot to oust the prime minister.
The Pound remains under pressure, likely influenced by the ongoing reports surrounding Starmer. The uncertainty following the budget is prompting investors to demand a higher risk premium on Sterling.
At the time of writing, the Pound was down 0.2% against the Dollar, trading at $1.3125.
Against the Euro, Sterling weakened by as much as 0.2% to 88.26 pence, hovering near its lowest level in two and a half years.
Despite its current weakness, Sterling is still up around 5% against the Dollar so far this year. However, anxiety is building ahead of the 26th November budget, where tax increases are expected to be necessary to stabilise public finances, Reuters reports.
The fiscal outlook has worsened due to earlier plans to scale back welfare spending cuts and a downgraded productivity forecast from the UK’s budget watchdog.
Markets are now pricing in roughly a 75% probability of a quarter-point rate cut by the Bank of England next month, following Tuesday’s labour market data showing the unemployment rate edging up to 5%.
At the same time, wage growth excluding bonuses slowed to 4.6% in the three months to September.
The Pound weakened against both the Dollar and the Euro on Tuesday, as the data suggested that inflationary pressures may be easing.
In comments on Tuesday, Bank of England policymaker Megan Greene welcomed the slowdown in wage growth but expressed concern about surveys indicating that pay settlements could remain relatively high next year. Greene was among the majority who voted to keep the Bank Rate unchanged at last week’s policy meeting