Analysts predict that the pound will fall against the US dollar if Keir Starmer resigns as UK prime minister, leading to higher UK gilt yields in response to potential political instability.

The UK’s bond markets have been restless in response to fears of fiscal indiscipline under a new government, with gilt yields fluctuating as political crises unfold.

Investors are closely monitoring the UK’s gilt market for signs of political fallout, as the possibility of Starmer resigning as PM could lead to market volatility and heightened uncertainty.

A change in government leadership could have negative implications for the pound, with experts forecasting a downward trend against the US dollar and potential impacts on inflation and imported goods costs. The pound is expected to weaken against the US dollar if there is a change in UK government, leading to higher UK gilt yields. Analysts predict bond markets will demand a higher yield premium if a less fiscally disciplined chancellor takes over. This political crisis could impact Prime Minister Keir Starmer and potentially trigger a general election.

Morningstar’s chief European market strategist, Michael Field, highlights the stability of the UK government over the past year and a half as a key factor supporting the UK economy. He also notes that higher inflation and interest rates in the UK have attracted capital inflows, keeping the GBP relatively strong. However, a collapse of the government could result in a sharp decline, especially with the rise of right-wing parties in Europe.

Read more at Morningstar.: What Would a Starmer Resignation Mean For Markets?