The Federal Reserve has held its benchmark interest rate at 3.5% to 3.75%, although three policymakers voted for an increase. The split highlights persistent global inflation risks and the possibility of continued pressure on UK borrowing costs, sterling and corporate refinancing.
UK government borrowing costs rose above 5% after renewed fighting between the United States and Iran pushed oil and gas prices higher. The increase in gilt yields reflects growing concern about inflation, further Bank of England interest-rate rises and pressure on the public finances, mortgages and business borrowing.
City traders have reportedly built short positions of about £7 billion against sterling as markets assess the prospect of an Andy Burnham premiership. The move reflects concern over Britain’s fiscal outlook, borrowing costs and uncertainty around future tax and spending plans. But the reaction is not a simple verdict on Burnham: the pound has also recovered when he has committed to existing fiscal rules, showing that markets are watching for credible detail rather than rejecting political change outright.
The pound weakened and UK government bonds remained cautious after Sir Keir Starmer announced his resignation as prime minister. Markets appear to have priced in much of the political risk, but attention is now turning to Andy Burnham, the leadership timetable, the next chancellor and whether the UK’s fiscal rules will remain credible.
The pound has weakened as speculation over Sir Keir Starmer’s future adds to concerns over UK political stability, borrowing costs and fiscal credibility. Markets may tolerate a change of prime minister, but they are likely to prefer a swift and orderly transition over a summer of uncertainty.
The FTSE 100 edged higher as investors weighed hopes of a US-Iran agreement against uncertainty over oil supplies, inflation and central bank policy. Falling crude prices have eased fears of another energy shock, but markets remain cautious as traders await more detail on the deal, the Bank of England’s next move and the wider impact on UK businesses.
