Sterling could remain under pressure as political uncertainty in the UK collides with softer economic data and a less supportive rates backdrop.
Keir Starmer’s resignation has put the political transition firmly in focus, and while an orderly handover could help steady sentiment, the near-term risk is that uncertainty around leadership and policy direction adds another layer of caution for investors.
At the same time, the Bank of England’s decision to hold rates at 3.75% has done little to offer fresh support to the pound.
Markets still see some chance of a rate hike later this year, but for now the tone remains cautious, particularly as policymakers weigh the impact of weaker growth against still-elevated inflation pressures.
That softer growth picture was reinforced by the latest June flash PMI data. The Services PMI fell to 48.7, its weakest reading since January 2023, underlining the pressure facing the UK economy and adding to the downside risk for sterling if activity continues to deteriorate.
From here, the pound is likely to remain sensitive to the same few variables: political stability, incoming growth data, and the Bank of England’s policy path. A smoother leadership transition and clearer policy direction could help calm markets, but if political uncertainty deepens and the data continues to soften, sterling may remain under pressure.
From a technical perspective, GBP and USD remain locked in a stalemate that stretches back to 2016 and, more recently, to April 2025. For now, the geopolitical backdrop offers little that looks strong enough to push this major currency pair out of consolidation and into a clear trend, and so we remain flat.
The FTSE 100 is also moving sideways after setting record highs in February, with the 10,000 major round number continuing to act as support. Even so, index consolidation has not prevented individual names from continuing to outperform. We continue to hold positions in stocks outperforming the index, such as ATT and PCT, and will continue to add as those trends strengthen.
It now remains to be seen whether the change in political leadership injects fresh momentum into the index and helps push stocks higher from here.
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