Credit Agricole warns sterling may face pressure from Burnham’s fiscal policies, despite recent market complacency.
GBP/USD could weaken if Labour’s Andrew Burnham becomes UK prime minister, as his policy agenda may strain fiscal discipline, according to analysis. The pound has recovered slightly amid reduced political uncertainty, but risks remain if Burnham’s leadership triggers bond market resistance.
Market betting odds already favor Burnham’s victory, with UK credit default swap spreads hitting a three-month low. However, analysts caution that FX investors may underestimate the potential for fiscal expansion under his leadership, which could antagonize bond vigilantes.
While some negatives are priced in, a Burnham premiership could shift focus to political risks, weighing on sterling. The analysis highlights concerns over his policy implementation and its impact on gilt markets.