THE Pound is falling as Keir Starmer holds onto the Labour leadership – but financial experts say he is “done for” and should accept his P45.
Pressure has been building on Starmer after Labour’s disastrous performance in last week’s elections.
Labour lost control of 35 councils and saw the mayoralty in Hackney go to the Green Party – Starmer’s party also lost in Wales after 27 years in power.
The party are losing votes to the right, in Reform, and the left, in the Greens and the Liberal Democrats.
Around 80 Labour MPS have urged the Prime Minister to quit, or at least draw up a timetable for his exit.
But Starmer is holding firm and held a cabinet meeting this morning – telling his cabinet he will “get on with governing” and a leadership contest has not been triggered.
Financial experts warned that the Pound has already been hit, down against the Dollar to $1.35 from $1.36 and against the Euro to €1.15 from €1.16 this morning. The UK’s 10-year gilt yields are up to 5.10%, from 4.90% yesterday.
The Pound is already down over 0.5% across the board
Prem Raja, Head of Trading Floor at Currencies 4 You, said the Pound is being affected already.
He added: “Markets dislike uncertainty, and right now UK politics is adding another layer of it. The Pound is already down over 0.5% across the board this morning as investors react to growing pressure surrounding Keir Starmer and speculation over his future.
“Any serious leadership challenge, or even the perception that the government is losing control internally, tends to weigh on Sterling because investors prefer stability and clarity when pricing UK assets. The bond market reaction is arguably even more important than the headlines themselves. If investors begin questioning the government’s ability to maintain fiscal discipline and deliver policy consistency, gilt yields could remain elevated as markets demand a higher premium to hold UK debt.
“Ultimately, the more unstable Westminster appears, the harder it becomes for markets to price the UK with confidence, and that uncertainty is rarely positive for Sterling.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the writing is on the wall for Starmer.
He added: “Keir today, gone tomorrow. Starmer is done for. The only question now is how the transition unfolds and who succeeds him. A Streeting premiership would likely draw a muted response from the markets. A Rayner, Miliband or Burnham succession, however, would probably be read by the bond markets as a lurch to the left, signalling looser fiscal discipline, higher borrowing and increased spending.
“That risks triggering a bond market crisis, with gilt yields already at multi-decade highs. There has never been a bond market crisis that has not also become a Sterling crisis. Support for the Pound is sagging, though there is no panic – yet. Starmer’s replacement will matter in the short term.
“In the medium term, I fear whoever takes over will ultimately fail. The UK appears stuck in a rut of low growth, low productivity, high taxation, high welfare costs, persistent inflation and heavy regulation, with living standards for the majority deteriorating month after month, year after year.”
For 2026, the risk is a confidence trap
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said there is a risk of a “confidence trap” in the UK.
She added: “Markets do not need Westminster drama right now, they need grown-up, boring, credible leadership. The real outcome of this cabinet meeting is not who had the loudest voice in the room, it is whether investors believe the Government still has control of the economic story. Bond markets are basically saying: show us discipline or pay more to borrow.
“If gilt yields stay under pressure, that does not remain some City headline. It feeds into mortgage pricing, business borrowing, government spending decisions and overall confidence. The Pound is also vulnerable because political instability makes investors nervous, and a weaker Pound can import inflation just when households are desperate for breathing space.
“For 2026, the risk is a confidence trap: weak growth, sticky inflation, nervous bond markets and a Bank of England that has less room to cut rates than people hoped. The UK does not need slogans. It needs stability, credibility and decisions that markets can actually trust.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said Starmer needs to walk.
He added: “It doesn’t matter if you are charismatic yet despicable, or dull as dishwater with the best interests of the country at heart, but as one of them once said, ‘when the herd moves’ your time is over.
“By clinging on, Starmer is now affecting the cost of living for every British citizen. Mortgage costs are creeping up as uncertainty creeps into everyday governing. By anyone’s analysis, it’s time to accept your P45.”
It’s a thrill ride nobody asked for
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, fears that inflation will keep going up.
He said: “A room full of ‘united’ ministers, all nodding in furious agreement while sharpening their knives under the mahogany table. Following last week’s electoral ‘success’, if you define success as losing everything but the office stapler, it’s bound to be lively. The likely outcome? A stunning display of ‘decisive unity’, which is Westminster speak for a desperate policy pivot designed to bribe a grumpy electorate.
“For the bond markets and the Pound, it’s a thrill ride nobody asked for. With gilt yields flirting with 5% and the Pound looking shakier than a Cabinet minister’s job security, investors are reaching for the gin. Inflation is still the guest that won’t leave, currently loitering at 3.3% with every intention of hitting 6% by year-end.
“Expect the ‘straight talking’ solutions to involve more borrowing and a ‘growth strategy’ that consists mostly of crossing fingers. In 2026, the only thing rising faster than the cost of living is the level of theatre in Downing Street.”
Photo by Philip Veater on Unsplash.
